Being mortgage-free may feel like a distant event, but there are ways you can bring the date forward. Darren Polson offers three options to a reader hoping to pay their mortgage off, faster
The Question
I bought a property two years ago and I’ve earned a lot of equity during that time thanks to house prices rising here. Now I have settled into making mortgage repayments and have seen how lucrative my investment has been I feel inspired to pay down my mortgage as quickly as possible.
My mortgage is 25 years – but I’ve heard stories of people paying theirs off early. Do you have any tips for becoming mortgage-free sooner.
Darren’s Answer
Becoming mortgage-free is a great goal to have!
There are many ways to achieve your goal, let’s focus on three of them:
1. Make overpayments
There are different types of mortgages which will allow overpayments. With fixed rate mortgages, many lenders will allow a maximum of 10% of the outstanding mortgage balance to be overpaid each year.
You can pay by a lump sum payment or a monthly contribution to reduce the balance. This is based on the mortgage balance which will go down each year meaning the amount you can overpay reduces.
By sticking to the 10%, you will avoid any risk of an early repayment charge.
Other mortgage rate types such as tracker and variable often don’t have the same constraints as fixed rates, and some don’t even have an early repayment charge. This means you can overpay as much as you like to the mortgage to bring down the balance
2. Reduce the term of your mortgage
By reducing the term of your mortgage, your payments will increase – but this will mean your mortgage is paid off sooner.
Lenders will carry out an affordability check to see how much you can reduce the term by, and it is important not to over-commit as you could make ad hoc overpayments as noted above.
Please note that – depending on who your current mortgage lender is – you may need to wait until the end of your current rate to do this, although some lenders will allow this to happen at any time.
3. Re-finance
This sounds simple, but make sure you are on the best possible deal!
Speak to a mortgage broker who can search the market and ensure you are on the best available rate for your circumstances.
The lower your interest rate, the more capital you will repay, which will reduce your mortgage balance.
Do be mindful of early repayment charges, however.
If you would like support or examples on how these options can impact your mortgage, please arrange a chat with a mortgage broker, who can guide you through the process.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been a regular columnist for what MORTGAGE for over three years and is here to answer YOUR questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
