by Housesimple on 27th September 2017
There are many reasons why you might want to pay off your mortgage early. Not only will it give you a bit of spare cash, but you also won't have to worry so much about future changes to the property market.
Here's how to get rid of your mortgage earlier and say cheerio to your big bank loan.
Before you've even taken out a loan, make sure you're getting the best deal possible. It sounds simple, but you'll pay back your mortgage faster if the interest rates are low and the conditions fit your situation. Shop around when your fixed-term contract ends, keep an eye on interest rates and don't be afraid to switch.
The standard term for a mortgage is 25 years, so that's what your lender will calculate your repayments on. If you can afford to pay more, let them know – you can take out a mortgage for as little as five years. The shorter the term, the lower the interest (and the cheaper your payments will be).
If you have money left over at the end of the month, put it towards your mortgage. Some lenders have penalties, but most let you overpay by up to 10% – even if you're on a fixed-term contract. Money Saving Expert has a mortgage overpayment calculator that you can use to work out how much you could shorten your term by.
If you don't want to part with your savings, you can still use them to reduce your debt by choosing an offset mortgage. This reduces the figure that you pay interest on – e.g. if your mortgage is £150,000 and you have savings of £10,000, you'll only pay interest on £140,000. You'll no longer earn a return on your nest egg, but this can benefit you when saving interest rates are low.
Getting a financial windfall is always exciting, but instead of spending the extra cash on a holiday or a fancy new car, stick it into your mortgage. It might feel a bit dull, but you'll pay your loan back faster. Note that you can only do this if you have a fully flexible mortgage, as your bank may charge a penalty for early repayments.
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