As national mortgage brokers, customers often ask us how they could pay off debt early so that they are mortgage-free. We have put together this nifty little guide.
Make Regular Overpayments
A simple steadfast way to become mortgage-free sooner is with regular overpayments. Even a small amount paid regularly can reduce the amount you owe, which in turn reduces the amount of interest that you pay monthly.
There is a misconception that to add in overpayments you will need to re-arrange your mortgage deal. But most lenders offer overpayments between 10 % to 20% of the value of the loan a year without incurring any fees or charges.
Nowadays has become easier to make overpayments, with most lenders accepting regular direct debit payments to count towards your overpayment. However, if you prefer to save up a lump sum and go to your local bank of building society to make an overpayment this is also generally available.
However, before committing to regular overpayments, go through your budget, and see if the additional outgoing is affordable for you.
Shorten Mortgage Term – If it is affordable
Another option might be to decrease the term of your mortgage, which in turn would increase your monthly payments. The benefit of decreasing a mortgage term is that you will a.) have less interest to pay over a period, and b.) be debt-free sooner, and not have to worry about interest rate fluctuations.
Another plus point is that shorter-term mortgages could be lower interest rates.
Regularly review your mortgage to make sure you are not paying too much. You may also consider re-mortgaging and see if you can find a lower interest rate, which not only reduces the amount of interest you pay over a period. But the money that you save on less interest paid can be used towards overpayments.
Side note, when you change from one mortgage product to another, there are usually arrangement fees that you will need to pay. Dependent on the mortgage product you could pay between 1% to 3%.
Would you like to discuss your mortgage options?
As an independent mortgage broker, we have access to comprehensive mortgage and insurance markets, giving competitive options and prices across both residential and commercial products. Get in touch to see how we can assist.
Attention: Late repayments can cause you serious money problems. For help go to moneyhelper.org.uk