Tips to Pay Off a Mortgage Faster

Even if your monthly mortgage payment is easily manageable, you may still feel the burden of having a mortgage debt hanging over you. Because mortgages are tied to physical assets, usually a house but in some cases land, people often overlook the fact a mortgage is a debt – and a significant one in most cases.

The good news is there are ways of managing your mortgage debt effectively and ensuring you pay it off in the soonest possible time. For most homeowners, being mortgage free is the goal and in this guide, we look at exactly how to get to that stage.

Let’s explore the tips to pay off a mortgage faster.

Is it Worth Paying Off Your Mortgage Early?

If affordable, it is always best to pay off your mortgage sooner rather than later. This is because the longer you hold the mortgage, the more you owe in terms of interest. To calculate how much you can save just by adjusting your mortgage term you can use a mortgage calculator.

Mortgage calculators are fantastic as they allow you to see the total amount repayable and also provide you the flexibility to play around with your mortgage term and monthly payments. By using a calculator, you will be able to see the most cost-effective monthly payment to reduce the total amount repayable.

Ways to Pay Off Your Mortgage Early

There are a number of ways to repay your mortgage early, some of which you may have considered and others you might be surprised to realise.

The most common ways to repay your mortgage earlier are:

• Overpaying your mortgage
• Shorten your mortgage term
• Remortgaging whenever your mortgage deal ends
• Use existing money to clear down the debt

Overpay Your Mortgage

Overpaying on your monthly mortgage payment or at intervals during your mortgage deal can be excellent for clearing down your total debt.

For example, if your monthly mortgage payment is £500, overpaying by an additional £500 each month might be easily affordable and it will take a large chunk out of the capital you have borrowed. This means when you come to remortgage, you will be borrowing less, and as a result, the total amount outstanding on your mortgage will be reduced.

Most lenders allow you to make overpayments on your mortgage penalty free up to a certain threshold. For example, your lender may allow you to pay up to £10,000 during your product term without a penalty. This threshold is typically up to 10% of the outstanding balance per annum.

Be careful to check your mortgage documentation as some lenders have hefty Early Repayment Charges for overpaying on your mortgage. If you want to make overpayments, it is a great idea to discuss this with your mortgage broker or lender and find out how much you can pay without incurring an additional charge.

Shorten the Mortgage Term

As mentioned at the beginning of the article, the longer you have a mortgage, the more interest accrues and the more your total borrowing cost is.

Shortening the mortgage term reduces the amount of interest that can accrue and in turn reduces the total cost of borrowing.

If you are in a product term, such as a 2 year or 5 year fixed, you may not be able to shorten your mortgage term without remortgaging early and potentially having an Early Repayment Charge.

What is an Early Repayment Charge?

When your lender offers a lower interest rate on a mortgage deal, they have assessed the amount of profit that they will make over the product term.

For competitive lenders, the amount of profit they make can be marginal, so making overpayments or remortgaging early can tip them from profit to loss on the amount they lend. As a result, lenders factor in this risk by enforcing Early Repayment Charges to ensure their mortgage deals are always profitable.

Remortgage When Current Deal Ends

A common method to reduce your mortgage borrowing is to remortgage when your deal ends. If you fail to remortgage, you will be automatically moved to a lender’s Standard Variable Rate, an uncompetitive interest rate compared to the interest rates they offer on deals.

By remortgaging, you are ensuring that the interest rate on your mortgage is kept as low as possible throughout your term period.

A Whole of Market mortgage broker, like Boon Brokers, can compare the mortgage market and find the most competitive interest rate for your circumstances. Establishing a relationship with a mortgage broker will allow you to relax and know your mortgage is going to be looked after over the course of the mortgage term. Boon Brokers have built a bespoke Remortgage system that sends clients a reminder text, e-mail, and postal letter 6 months before the early repayment charge end date. At that stage, our brokers make frequent contact with clients to ensure that they receive a mortgage offer well before their existing product expires to ensure a smooth transition to the new mortgage.

Use Any Additional Savings

One of the most common questions for a financial adviser is whether it is best to save money or pay off debt.

You will find that it is best to repay outstanding debt before saving or investing. This is because the interest rates on savings are normally lower than the interest rates on a debt.

To work out whether you should save or repay your debt, you should do a simple calculation. Compare the interest rate on your debt and the interest you can make on your savings.

If the debt interest rate is higher, assuming that there are no other additional costs, you will be financially better off by repaying this before saving.

Speak to a Mortgage Specialist

Making overpayments on your mortgage or paying it off entirely should be your goal as this frees up cashflow and secures your finances over the long term.

If you are unsure about how to reduce your mortgage debt or you want to explore your repayment options, you should discuss your situation with a mortgage broker.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers offers fee free mortgage advice and will remain in touch with you throughout your mortgage term to ensure you are getting the best deal possible.

Contact Boon Brokers and book your mortgage consultation today.