Over the last 15 years, interest rates have been on a downward curve, and while house prices have ballooned, the cost of servicing mortgage debt has been mercifully low.

That is now changing rapidly, as the Bank of England tightens monetary policy to deal with spiralling inflation. Many people will consequently be looking forward to rolling onto their next mortgage deal with some trepidation and may be wondering about whether to use any excess savings to pay down the debt on their home.

There are lots of different dynamics at play in this scenario, so everyone must assess their own situation individually. But there are some common factors.

WHAT’S YOUR CURRENT RATE?

Clearly an important consideration is the rate of interest you’re paying on your mortgage, and how long you have got it locked in for.

Those who took out fixed-rate deals in 2021 probably benefited from extremely favourable interest rates, and so have less of an incentive to pay down their debt. Those with longer to go on such mortgages might be a bit more comfortable leaving their debt level as it is, while those who are soon coming to the end of their deals are probably a bit twitchy about re-mortgaging.

The best rate on a two-year fix, based on a 75% loan to value, is currently 4.5% according to Moneyfacts. A year ago the typical rate was 1.2%, according to the Bank of England. That’s quite some jump.

WATCH OUT FOR OVERPAYMENT CHARGES

Before paying down your mortgage you need to factor in any fees you might incur in doing so. Many mortgages will only allow you to overpay a certain amount each year, often set at a maximum of 10%, though some providers will have lower limits.

If you pay back above this amount, you could start to rack up large penalty fees, and the whole endeavour becomes less economical.

So, it’s important that before you start to overpay, you check the terms of your mortgage to make sure you don’t face any punitive charges and adjust your payment if you do.

You should also compare your mortgage interest to the rates you can get on cash. Interest rates have moved up sharply, so you might be able to earn more on cash in the bank than the interest you are paying on your mortgage. That’s particularly the case if you’re willing to lock your savings away for a while.

There are some one-year fixed-rate bonds currently offering 3.5% interest. However, you do need to account for the potential effect of tax on your cash interest. The first £1,000 of interest you earn each year as a basic-rate taxpayer is tax-free, and that allowance falls to £500 for a higher-rate taxpayer and zero for an additional-rate taxpayer. But anything above these levels is taxed at your marginal rate, so you need to consider what you will get net of tax if you are thinking about using savings to offset your mortgage interest.

Clearly if you’re locking money away for a set period of time, in a three-year savings bond for instance, you need to ensure the money is available when you next re-mortgage, because that will probably be at a higher rate, and you may wish to use the cash to reduce your debt at that juncture.

HAVE YOU GOT EMERGENCY CASH SET ASIDE?

If you are paying down your mortgage, you also need to make sure you maintain enough cash for a rainy-day fund, so you don’t find yourself caught short in an emergency.

It’s possible to take money back out of your home, but this would require re-mortgaging, and all the costs and inconvenience that involves, so it’s highly undesirable. It’s much better to maintain a sensible cash buffer to cover emergencies, typically three to six months of household expenses will do.

Mortgages are a cheap way of borrowing, so you should attend to any other debt first, because it will probably be costing you a whole lot more in interest. This includes personal loans, store cards and credit cards.

You can often move credit cards to a new account paying 0% for a limited time, but this is ultimately just kicking the can down the road, and after the introductory period, the lender will start to charge more normal rates of interest.

Once more expensive debt is cleared, the instinct to pay down your mortgage is a natural and sensible one but do make sure you consider all the costs and alternatives before proceeding.

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