A mortgage is a hefty financial burden and is there for decades. Many of us dream of paying off our mortgages early and freeing ourselves from that burden and spend the money on enjoying life to the full. Who doesn’t want that all expenses paid holiday of a lifetime? What about that nippy little sports car you’ve always wanted? Paying off your mortgage early can pave the way to these luxuries, but it sometimes feels like an impossible dream. In this article we will look at ways you can pay your mortgage off early.
Overpay
One simple way to reduce your mortgage term is to overpay every month. Oddly enough, although we would always advocate having enough savings for a rainy day, your savings are normally earning you less in interest than your mortgage is costing you. Clearly, we would advise that you check this carefully but using savings to overpay your mortgage could be a good way to maximise the savings on your mortgage. Alternatively use any pay rises that you get to increase your monthly payments to your mortgage lender. Things such as bonus payments can also be used to pay one off lump sums to the mortgage account. Check the mortgage agreement if you do want to overpay, though, as you don’t want to be hit with early redemption fees by your mortgage provider for overpaying too much.
Shorten your mortgage term
If you are on a fixed rate mortgage which is due to expire, when you renew it, rather than keeping the mortgage term the same, see if you can afford to take a couple of years off. So, if you have 23 years left on the mortgage at the end of the fixed term then reduce the renewal to 21 years. This will increase your payments but if you can afford to do that every time you renew you could be mortgage free years sooner and save thousands on interest payments.
Change mortgage type
Another way to use your savings, without actually having to spend them is to change your mortgage type to an offset mortgage. This links your savings to your mortgageand essentially reduces the mortgage amount you pay interest on by the amount of savings you have. So, if you have a mortgage of £150,000 and £10,000 in savings you will only pay interest on £140,000. If you keep your repayments the same then you are essentially overpaying your mortgage as your interest payments will reduce, but your payments remain the same rather than reducing at the same rate. Just remember, that it is likely you will not get interest on your savings if you do this, so you need to work out if it makes financial sense.
There are ways to repay your mortgage early and these can be affordable. We do, however, recommend that you get expert mortgage advice before deciding how to manage your mortgage payments to make sure that what you do does not impact you adversely.
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