Mathematically, if your income is already taking you to the higher-rate tax threshold, the answer is almost certainly no. But sometimes it’s not just about the maths.
Imagine having £67,500 left to go on your mortgage and phoning the bank to ask about paying it off in full. They tell you it’ll cost £100,000 to pay it off. You’d think that was pretty crazy - a £32,500 penalty charge for paying off a loan of £67,500. But if someone with income over £50,000 takes further dividends in order to overpay their mortgage, that’s exactly what they’re doing (and it could be an even bigger penalty than 32.5%, if it means losing child benefit, or taking income over the £100,000 or £150,000 marks).
Clearly, in that situation, most people would decide to keep their £100,000, and carry on paying off the mortgage month-by-month, given the historically trivial interest rates that most of us pay on our mortgages.
Looking at it from the other side, someone with plenty of money in their company wanting to buy a house might think “if only there was some kind of low-interest loan available which I could use to pay for this house that would enable me to avoid extracting money from my company at high tax rates”. There is! It’s called a mortgage.
Having said that, for many people it can still be overwhelmingly psychologically important to pay it off. And it might well be that for those people the tax cost is worth it for the peace of mind. But it’s smart to at least be aware of the true financial cost before going for it!
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