4.2 • 721 Ratings
🗓️ 19 February 2025
⏱️ 6 minutes
🧾️ Download transcript
A handpicked article read aloud from the latest issue of The Economist. For decades it made sense to slowly pay down a mortgage over time, but that is no longer the case. Rising interest rates mean the smart thing to do is pay off your mortgage early.
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0:00.0 | Hello, Mike Bird here, co-host of Money Talks, our weekly podcast on markets, the economy and business. |
0:14.6 | Welcome to Editor's Picks. We've chosen an article from the latest edition of The Economist, which we very much hope you'll enjoy. |
0:25.8 | The holiday from reality for the happy few enjoying it has been delightful. Three years ago, |
0:33.1 | it was still possible to fix a mortgage rate in Britain and much of the euro area at somewhere |
0:39.2 | near 1%. American housing loans were dearer by just a percentage point or two. Even as interest |
0:46.8 | rates have risen and borrowing costs for new mortgages have doubled or tripled, homeowners who |
0:53.1 | locked in the enviable rates of the early 2020s |
0:56.7 | have been living blissfully in the past. Moreover, the inflation that prompted rates to rise |
1:03.6 | has bitten chunks out of the real value of their debt. Alas, the holiday is now over for many. Although American fixed rates often last |
1:15.2 | for decades, most in Britain and swathes of continental Europe expire after five years or less. |
1:22.9 | It was in early 2022 that the last of the dirt cheap loans disappeared, after which borrowing costs |
1:30.2 | began climbing fast. A large number of mortgage holders, in other words, have either seen their |
1:36.5 | interest bills rocket recently or will do soon. For those with spare cash to hand, |
1:43.0 | a question that seemed remote a few years ago is suddenly a great deal more pressing. |
1:49.4 | Should they repay the debt early? |
1:52.8 | To many who owed money during the 1980s, when interest rates soared into the double digits, the answer is an obvious yes. |
2:04.1 | At the time, borrowing costs became so elevated that merely meeting them, let alone repaying any capital in addition, was a constant |
2:10.4 | struggle. The risk of that being repeated is simply not worth taking. Better than to pay all debt off at the earliest opportunity, |
2:19.9 | while doing so is still possible. Even if rates stay where they are at present, that will save |
2:26.5 | money on future interest bills. Those whose experience was shaped by more recent decades |
2:33.7 | might feel rather differently. |
2:36.6 | Interest rates have spent most of that time on a downward trend, culminating in the ultra-loose |
... |
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