Paying off your mortgage might come with a sense of relief and far more financial freedom. If reaching that milestone as soon as possible is one of your goals, there are ways to pay off your mortgage quicker.
Being mortgage-free could open up doors for you. Without mortgage repayments, you might be able to travel more, retire sooner, or simply increase your disposable income. Yet, it’s a milestone that can seem impossible when you still have years, or perhaps decades, left.
So, here are five savvy ways to reduce your mortgage debt quickly.
1. Reduce your mortgage term
The mortgage term is how long you’ll repay the money you’ve borrowed. If you want to be mortgage-free sooner, choosing a shorter mortgage term is a simple way to do so.
As you’ll be repaying the debt over a shorter period, your monthly repayments will be higher. Let’s say you’ve borrowed £200,000 through a repayment mortgage with an interest rate of 4.5%. With a mortgage term of:
- 30 years, your monthly repayment would be £1,013
- 20 years, your monthly repayment would be £1,265.
So, if you can afford the higher outgoings, a shorter term is a great solution.
The other benefit of choosing a shorter mortgage term is that you could save thousands of pounds in interest. Using the above scenario, the total interest you’d pay over the full mortgage term would be:
- £164,649 if your mortgage term was 30 years
- £103,572 if your mortgage term was 20 years.
As a result, higher outgoings now could mean significant savings over the long term.
2. Make regular overpayments
If you have some money spare to make higher monthly repayments but want flexibility, overpaying could be an excellent choice.
You could use overpayments to reduce the mortgage term and cut the amount of interest you pay overall. However, you could stop or pause the overpayments if you need to. For example, if you face an unexpected bill, you might choose to halt overpayments for a few months.
Even relatively small amounts made regularly add up when you’re paying off a mortgage. Let’s say you borrow £150,000 through a 25-year repayment mortgage with an interest rate of 4.5%. Your usual repayment would be £833.
If you overpaid every month by £100, you’d be mortgage-free four years and five months earlier. Plus, you’d save more than £20,000 in interest payments.
One thing to note is that you can usually overpay up to 10% of your mortgage each year before you face a charge. You should check the terms of your mortgage and be aware that you might need to pay a fee.
3. Pay a lump sum off your mortgage
Much like making regular overpayments, paying a lump sum off your mortgage could mean it’s paid off sooner, save you money overall, and provide you with some flexibility.
Using the above scenario, let’s say you have a mortgage of £150,000 through a 25-year repayment mortgage with an interest rate of 4.5%. If you made a one-off lump sum payment of £10,000 at the start, you’d reduce the mortgage term by two years and 10 months, and save almost £19,000 in interest.
While you still hold the lump sum you plan to use to reduce mortgage debt, you could also be earning interest from it, so consider the account you place the money in.
Again, you may want to check if you could face an early repayment charge before making a lump sum overpayment.
4. Consider an offset mortgage
An offset mortgage is a type of mortgage that links a savings or current account to your mortgage. The amount held in the account is offset against the amount you owe, which affects the amount of interest you pay.
As a result, the more you hold in the linked savings or current account, the less interest you pay. So, if you continue to make repayments at the same rate, you may be able to reduce your mortgage term as more of your repayment could go towards reducing the debt.
An offset mortgage isn’t right for everyone, but it could be useful if you have savings that are earmarked for medium- or long-term goals.
If you’d like to discuss if an offset mortgage could be right for you, please get in touch.
5. Switch your mortgage deal
Securing a competitive mortgage could mean your interest rate and mortgage repayments fall. With that extra money, you might be in a position to boost overpayments or put money to one side so you can pay a lump sum off your mortgage in the future.
As a mortgage broker, we could help you search for a mortgage deal that suits your needs and might save you money. Please contact us to arrange a meeting.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
| YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE. |
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