If you’re looking to pay off your mortgage early, then it’s worth considering your options when you’re due to remortgage (agreeing to a new deal when your current mortgage rate ends).
There are many ways to pay off your mortgage early at the time of remortgage, including:
- Choosing an offset remortgage
- Changing the number of years your remortgage is repaid over
- Remortgage overpayments
- Using a cash sum from your pension for your remortgage
- Saving, and paying off your remortgage at the end of the agreement
Sounds simple? Well, yes, it does, and paying your mortgage off early is a dream for many, but there are details that need to be understood.
In some circumstances, waiting to pay off your mortgage at the end of the agreement could avoid fees and managing your money a little differently could mean extra in your pocket or more flexibility.
Your Remortgage Review
As with all financial matters, it’s important to understand what choices you have and whether you have other options. Regularly reviewing your remortgage options and seeking remortgage advice from a regulated adviser can help you.
Your remortgage broker will ask you about your current financial circumstances and what your future plans are, so you can discuss paying your mortgage off early. You’ll then receive advice and guidance on the options available to you and the opportunity to discuss what’s best for you.
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An offset remortgage is a savings account that’s linked to an offset remortgage agreement (your house loan).
How Does an Offset Remortgage Pay Off Your Mortgage Early?
You ‘offset’ your savings against what you owe when you remortgage, so you only pay interest on the remainder.
To explain, it’s best to illustrate an example:
- Your remortgage (house loan) is £200,000
- Your remortgage offset savings account (a bit like a bank account) has £50,000 in
- Therefore, you only pay interest (cost of borrowing) on the remaining £150,000
Despite the fact that offset remortgages have been around for a long time in the UK, they still aren’t understood or chosen enough -- even though they help to pay off your remortgage early.
Some people choose them because offset savings are accessible instantly and you can save as much as you want, so if your boiler breaks, you can dip in, and if you get a bonus from work you can top up your account.
Offset remortgage deals can be a little more expensive than normal remortgage rates, so it’s best to run through your options with a remortgage broker.
Changing the Number of Years Your Remortgage Is Repaid Over
When you remortgage your house, you’ll be asked by the remortgage adviser or the bank how many years you need to borrow money over, which can be tricky to answer. It’s for that reason that some people forget that you can reduce the years and pay your remortgage off early.
As your remortgage adviser will explain, though, it’s important to understand that decreasing the number of years you repay your remortgage over will increase your monthly repayment and affects something called ‘affordability’. If the decrease in years pushes monthly repayments above your affordability level, you might get turned down for your remortgage, so make sure you jot your expenditure down on a spreadsheet to check first.
Affordability refers to how much you can afford to pay for your remortgage after all of your other financial obligations, such as your gas bill are paid -- you need enough money to afford the increase in monthly repayments.
That being said, paying your remortgage off early will also save you interest (cost of borrowing) as you won’t be paying to borrow money for as long.
Make Remortgage Overpayments
Can you afford to pay a little extra each month for your remortgage payments? If so, then you can pay your mortgage off early. If you’re not ready to decrease the number of years you borrow money over and want to keep your remortgage payments low, then making mortgage overpayments might be for you.
Remember, though, that some companies only allow you to pay 10% of the loan back early before you incur an early repayment charge. You can check this with your lender.
Most people choose to pay just £50 or £100 extra by direct debit, but over time this can shave years off your mortgage -- so retirement can happen early.
Remortgage Using a Cash Sum from Your Pension
If you’ve recently started or are due to start receiving your pension, then you might be considering a cash sum to pay off your mortgage -- a remortgage is a perfect time to do this.
It’s vital to understand what your options are when it comes to your pension, as taking a cash lump sum can reduce your monthly pension payments moving forward. Not all pensions provide a cash lump sum, so it’s certainly worth asking a financial adviser to check for you.
Whether you’re paying off your mortgage in full or using the cash sum to pay down a chunk of what you owe as part of your remortgage process, it’s best to do this at the end of your remortgage agreement. This is because you might have something called early repayment charges (ERCs), which state that you have to pay a fee if you want to pay your mortgage off early.
You might still wish to proceed to pay off your mortgage early or pay down your mortgage as part of your remortgage, but it’s important to understand the consequences.
Remortgage Using Your Savings
The same is true of using your savings to pay off your mortgage or pay off a lump sum as part of your remortgage review -- you need to understand or avoid ERCs.
When using your savings, it’s also crucial to ensure that you have access to funds should you need to pay for a repair or have an emergency bill, so consider how much of your savings you need to leave.
There are also other options available for investing your savings, which your financial adviser can discuss with you -- they might include investments or high-rate savings bonds. These types of investments can go up or down, though, and often don’t give you access to funds within a period of time, so it’s important to speak with a financial adviser. Get in touch today on 0330 433 2927 or enquire online.
Compare the latest remortgage rates and deals with our comparison tool and discover how this type of mortgage works, the process and if it’s suitable for you.
Debt Consolidation Remortgage
On this page we go through debt consolidation remortgages, how they work, when you can do it, the pros and cons, which lenders are available and more.
Remortgaging means to switch to a new deal with a different lender but stay in the same property. Learn about remortgage costs, valuations and see our advice.
9 Reasons to Remortgage
Read our nine reasons why you should consider remortgaging your home. You can save a lot of money on remortgaging, so make sure you get the best deal.
On this page you’ll find our detailed mortgage terminology glossary. There’s a lot of jargon out there but we’re here to make it easy.
There are many valid reasons to remortgage. If you’re considering remortgaging your home but need help finding the right option for you, contact John Charcol. Our team of experienced mortgage advisers can recommend a range of remortgage options to suit you. Request a call back or call us on 0330 433 2927 to get in touch.
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