Is Reducing the Term of Your Mortgage Money Well Spent?

In today’s unstable economy, finding ways to save money is on everyone’s mind. UK borrowers are no exception, there are some homeowners who want to reduce the term of their mortgage and pay it off early.  Being mortgage-free is definitely something that sounds appealing, but is it really money well spent?

The advantage of reducing your Mortgage term

Besides just being mortgage free, there are some definite advantages in paying off your mortgage early.  It’s more money in your pocket because you’ll pay the lender less money in interest over a shorter term.  You will also give yourself the opportunity to invest elsewhere by freeing up money that would have otherwise been spent on mortgage payments.  Another key benefit is that you will own your home sooner and be liberated of possibly your biggest creditor.

Get the right Mortgage

With the above mentioned advantages it’s hard to see why it wouldn’t make sense to pay off your mortgage early.  Lenders, however, have other ideas.  It’s not in their best interest for you to pay back your mortgage early so they don’t always make it easy for you!  Early Repayment Charges are standard on many mortgage products. Lenders use these fees as a safety net allowing them to recuperate some of their potential profits if you decide that you want to pay off your mortgage early.

However, there are products that are specially designed for people who believe they could repay their mortgage early.  You’re likely to pay for this privilege with higher interest rates but these costs could be outweighed by the potential savings you would receive by paying off your mortgage early. 

Not everyone has the potential to make extra payments and pay off their mortgage early but if you think you could, it’s important to speak to your financial advisor and set up the right mortgage or remortgage with this in mind.

Ways to reduce the term of your Mortgage

Lump Sum Payments - Making regular lump sum payments to your mortgage is an obvious way you can repay your debt sooner and reduce the term of your borrowing.

Flexible Mortgage - Not all products give you the flexibility to make overpayments to your mortgage. To be able to make lump sum and early payments, it’s important that you have a Mortgage that allows you to do this.  Flexible mortgages have grown in popularity over recent years, with more lenders offering products allowing early repayments and lump sum payments.

The level of Flexibility differs with each product and lender.  Before signing up, it’s important to know the full terms and conditions of your Mortgage.  It’s important that the interest on your Mortgage is calculated daily, so you can get the benefit from any overpayment as soon as you pay it. 

Offset Mortgage - An offset mortgage can also give you the potential to pay off your mortgage early.  This type of mortgage combines all your accounts into one so you can use the money in your savings or current account, to ‘offset’ the balance of mortgage and reduce the amount of interests you pay.  Reducing the amount you need to pay means you can shorten the term and be mortgage-free sooner.

It doesn’t have to mean beans and toast for life

The benefits of reducing the term of your mortgage are clear and there are many ways you can do this.  Don’t worry, making overpayments doesn’t have to mean beans and toast for life!  A mortgage advisor can help you to prepare a strategy to pay off your mortgage faster while allowing you to maintain your existing lifestyle.
 
Small changes to the way you structure your finances can make a big difference to the way you pay your mortgage, these could take years off the lifetime of your home loan and save you thousands of pounds in the long-run.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT

Our consultations are free however we charge a standard fee of £295 for mortgages and £1499 for secured loans.