How to pay off your mortgage early
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If you are looking to pay off your mortgage early, Michael Brown discusses your options
For some people a monthly mortgage repayment can be their most expensive payment, which is why many people wish to pay off their mortgage early.
While this sounds like a great idea in theory, it is only a realistic option for some people. Paying off your mortgage early generally means you will have less disposable income in the shorter or medium term. In addition, you could earn more money investing this money elsewhere.
Ultimately, you should consult your independent financial adviser before making any final decisions. But, if you are interested in investigating your options, there are four popular ways you can pay off your mortgage early.
Make regular overpayments your mortgage
The earlier you start making regular overpayments on your mortgage the greater effect it will have on reducing your overall costs. This is because overpaying on your mortgage reduces the amount of interest you owe in the future and your total mortgage term by months or even years.
Still, it is always wise to check if your lender charges an early repayment fee. Some banks and building societies will have a penalty for overpaying your mortgage by a certain amount, which could wipe out any money you were planning to save.
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Remortgage your property
Alternatively, some could consider remortgaging their property for a lower rate. When doing this, it is key to look for any penalties on your current mortgage and additional fees on your new mortgage deal. If there are fees, it would be wise to look at the total cost of borrowing and how it compares to your current deal.
Opt for an offset mortgage
An offset mortgage has a savings account linked to the mortgage which can either help you reduce your monthly payments or shorten the term and help you get mortgage-free sooner. A small amount of savings can make a big difference – a modest pot of £2,500 could shorten a £100,000 mortgage by seven months over a 25-year term, according to our calculations. In addition to this, some deals allow you to repay on your mortgage, which may be of interest to you if you are to receive further money in the future.
However, it is important to note that borrowers often pay for this through higher interest rates on their mortgage and will receive no interest on the savings in the account. Product choice is also typically limited when compared to the options for a fixed-rate mortgage.
Pay mortgage fees upfront
Many mortgages often come with a booking, arrangement, valuation, or administration fee among others. As a first-time buyer or remortgage borrower, paying for these fees upfront can be a great start to reducing your monthly payments. If you choose to add these fees to your monthly mortgage repayments, it can greatly increase the amount of total interest you will owe in total.
If you are thinking of paying off your mortgage early, visit moneyfacts.co.uk to access the best mortgage rates on the market.
Michael Brown is an online reporter at moneyfacts.co.uk, the money comparison experts, specialising in personal finance.