NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

Should I pay off my mortgage or invest?

Should I pay off my mortgage or invest?
Image source: Getty Images

The world of investing can be confusing for a beginner. So when you receive a lump sum of money, it can be difficult to know which direction to take. Should you pay off your mortgage or invest?

To help break it down for you, we take a look at the pros and cons of paying off your mortgage, as well as when it makes sense to invest a lump sum instead.

Compare stocks and shares ISAs

If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.

What should you look at first?

Before we take a look at whether paying off your mortgage or investing could be a good idea, there are a few financial questions you need to ask yourself first. The state your finances are in will largely dictate the best course of action for any extra cash you have.

Do you have emergency savings?

Having an emergency fund is important. The general rule of thumb is to have around three to six months’ salary in an easy access savings account in order to cover a job loss or unexpected expenses.

Do you have any expensive debts?

If you have an outstanding credit card balance, overdraft or a loan, then it could make sense to clear these first before committing your money to anything else.

These types of debt typically charge a higher rate of interest than you are paying on your mortgage or the return you could get on an investment. So clearing these first is a wise move.

Are you paying into a pension?

Your long-term financial health is important. The earlier you start to make contributions, the better the chance you have of building up a good pension pot. Also, pensions get tax relief from the government, so they are a very efficient way to save.

Are you making these 3 common investing mistakes?

These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold….

To help you side-step these pitfalls, and move forward on your path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter you best email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Should I pay off my mortgage?

If you’ve got some spare cash, either a lump sum or some regular extra cash in your monthly budget, then you are probably wanting to do something meaningful with it.

Your mortgage is probably one of the biggest financial commitments you have. It is worth exploring whether it is a good idea to pay off your mortgage early.

There are pros and cons to doing this. As usual, it’s very much dependent on your personal circumstances and who your mortgage provider is.

The main benefit of paying off part of your mortgage is that you reduce the level of debt you owe and pay it off that much faster.

You also don’t pay interest on the amount you overpay, and as you have reduced your balance, you reduce your overall interest charges. Finally, the money you save on interest could beat what interest you could earn on savings.

However, one of the first things you will need to explore is whether your mortgage has any overpayment charges. Lenders typically say you can overpay by 10% a year. But this isn’t universal, so it is worth checking. Iif you get this wrong you could be required to pay thousands in fees.

Another downside if you are looking to pay off your mortgage is that you will lose access to that cash. If you are confident you have a sufficient emergency fund, this isn’t an issue. But if you think you may need to access that money at some point, you won’t want it tied up in your property.

Should I invest?

With interest rates being so low, you may well be thinking that investing would make more of an impact.

The main thing to bear in mind with investing is that returns are only expected, not guaranteed.

If you expect to invest for a long period of time, there is potential for growth. And it could well be that you could earn returns greater than the interest you would have to pay on your mortgage. But this is in no way certain.

It is important to keep in mind that it’s probably not a good idea to invest if it puts you at risk of not being able to pay your debts.

Sometimes, talking to a financial adviser can help you make sense of a situation. is an online directory that partners you with a financial adviser in your local area. If you want to learn more, check out our review of their services.

Was this article helpful?

Reviewed and rated 4 stars out of 5 by MyWalletHero

Need investment advice? Get a free initial review lasting up to 1 hour, plus £50 off any follow-up advice.

MyWalletHero has sourced you a £50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free – use the Unbiased matching tool. 

*This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.