A mortgage is likely to be the biggest debt you’ll ever take on – but there are ways to pay it off faster and save yourself thousands in interest.
If you take out a loan to buy a home, you’ll agree to pay the lender a minimum amount each month.
But if you pay too much for Mortgagemeans you have to pay more than this minimum amount.
You can choose to overpay by depositing extra cash regularly each month, or make a lump-sum deposit less often.
The Sun has previously spoken to homeowners about why they pay off their mortgages early – such as Charlotte Jessop, who paid a pay an extra £30,000 on her debt.
You will be paid less interest – and save money for yourself in the long run – by overpaying your mortgage.
But according to life insurance broker LifeSearch, just 7% of UK homeowners paid more than their minimum repayment in the first six months of 2021.
That’s why The Sun sat down with Quilter’s mortgage expert Karen Noye to see if it’s really worth pouring your savings into paying off your mortgage.
Karen Noye, 41, has more than 12 years of experience in real estate and says the savings you can make to pay off your home loan early is “significant”.
“It is always worthwhile writing off any debt, especially in current conditions when interest rates are so low – even if Bank of England raises key interest rate. ”
“If you take out more mortgages now, you won’t be hit hard in the future by any rate hikes.”
But there are potential costs to be aware of, and it may not be for everyone – here, Karen explains all you need to know.
Clearing larger debts first
Before you decide to overpay your mortgage, you need to sit down and take a look at your finances first.
If you have debt with higher interest rates, Karen recommends paying those off first.
Mortgages typically have lower interest rates than most other debt, so it’s worth it Prioritize dealing with others before you start planning an overpayment.
“As for who would be better off paying off your mortgage early, it largely depends on your individual circumstances and whether the amount is right for you,” says Karen.
“If you have any outstanding debt, see which has the highest interest rate and find a way to get rid of it.”
Reduce your mortgage term
Another way to pay off your home loan sooner is to shorten the term when re-mortgaging.
Typically, many homeowners are more focused on getting better rates when Looking for a better deal rather than considering the length of their mortgage.
But if you use a longer mortgage term than you really need, you could end up paying more interest in the long run.
“Reducing the term will lower your interest and you’ll pay off your mortgage faster,” she says.
“Just taking a few years off your mortgage term can make a huge difference in the end – you could save thousands of pounds.”
Watch out for hidden costs
If you decide to clear your mortgage early by overpaying, beware of hidden costs.
Most lenders will charge you an early repayment fee if you pay more than 10% of your mortgage balance each year, Karen says.
That means you’ll need to read the fine print on your contract to make sure you’re not being charged a fee.
“Look at the terms of your mortgage carefully to avoid paying penalties and fees — if you end up paying this, that is defeating the subject of early mortgage payments,” adds Karen.
Little and often
Karen says you should consider overpaying your mortgage if you can afford it.
The lower your mortgage balance, the smaller the amount you’ll pay in interest.
For example, the amount of interest you would pay on a £100,000 mortgage would be lower than the same interest you would pay on a £150,000 loan.
That means setting up small monthly repayments can be worthwhile because while your balance shrinks, so does the amount of interest you pay.
“You are likely better off overpaying regularly because it has an immediate effect on your mortgage balance,” says Karen.
“If you pay £750 a month and can afford to round this up to £800, little things like that can make a pretty big difference.”
Don’t forget an emergency fund
Make sure you don’t sacrifice any savings to an emergency fund by overpaying your mortgage.
This is especially important when families are facing a cost of living crisis, with energy bills, food prices, transportation and fuel costs soaring.
It means that if there’s an emergency – like if you lose your job or your boiler breaks down – you’ll have enough cash to cover your expenses without missing bills.
“We recommend having an emergency fund to cover at least three months of cash needed to pay the bills,” says Karen.
https://www.thesun.co.uk/money/17376612/mortgage-expert-pay-off-home-loan-early/ I’m a mortgage expert and here’s how you can pay off your home loan early