It’s everyone’s dream to own their own home but once we’ve finally got on the property ladder and secured a mortgage our dreams quickly change and the goal becomes to repay the debt and get rid of the mortgage as quickly as possible. With traditional mortgage lengths of 25 years and the average first time buyer aged in their early thirties, the sad reality for many of us is that we’ll spend most of our lives answerable to the bank. But there are tangible ways that you can take back control, pay off your mortgage quicker and potentially save thousands of pounds in the process.
In this article our experts reveal their top tips to help you save money and pay off your mortgage debt quicker!
Make regular overpayments
Most lenders will allow you to overpay your mortgage by as much as 10% of the outstanding loan amount every year without penalty. If you can afford to increase your monthly direct debit by even a small fraction can have a massive impact on the length of your mortgage and the amount you’d pay back. Making small regular overpayments makes even more sense currently as interest rates are so low, rather than saving money each month in a savings account (that will attract little interest since the Bank of England base rate was reduced to just 0.25% in August) it might make more sense to use all or some of that money in large annual overpayments.
Before making any overpayment double-check the terms of your mortgage lender’s T&Cs to see how much you can overpay each month without incurring early repayment charges (ERCs).
Chances are when you got your first mortgage you weren’t able to get access to the best deals on the market. It’s often the case that lenders offer the lowest rates to borrowers who have a larger deposit, or more equity in their house. As you pay back money on your mortgage and as your home hopefully increases in price you’ll start to develop more equity meaning your loan-to-value ratio decreases. By regularly reviewing your mortgage and ensuring you’re on the best rate (get remortgaging advice here), you could potentially save thousands. So, when looking for your first mortgage, or when you come to the end of your current deal, such as a fix or a tracker get independent mortgage advice on the best rates available to you!
It may sound obvious but just because you start your mortgage with a 25 year term doesn’t mean you have to stick to that timeframe. You can start a mortgage for as little as five years and when you remortgage you can shorten your repayment term. That means that as you start to grow the equity in your property you could access better, cheaper rates, so long as you can afford the repayments you could reduce the term of your mortgage. The shorter your mortgage term, the less interest you will pay overall.
If you’ve already got savings and would prefer to keep hold of them for that rainy day scenario you can still use the cash to reduce your mortgage debt with a mortgage known as an offset. Put simply an offset mortgage uses the money you have in a savings account and effectively puts it to work, subtracting your total savings balance from your overall mortgage debt. You still pay interest, but only on the remainder of your mortgage balance. As an example, if you had a £100,000 mortgage and £30,000 in a savings account you’d only be charged interest on £70,000.
What this means is that you pay less overall on a monthly basis and crucially, you pay less interest over the lifetime of the mortgage – even if you keep your monthly repayments the same. That means by offsetting, you can not only save money but you can clear your debt faster.
A combination of the above tactics can dramatically reduce the length of your mortgage and the total amount of money you pay over the lifetime of your mortgage. For more advice on how you can save call us now on 0344 346 3672 or submit an enquiry here.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.
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