Ask anybody and they’ll tell you that owning a property is incredibly important. However, most people spend tens of thousands of pounds on mortgage interest payments, which is money that could be saved for something useful or exciting.
This article will discuss what you need to pay your mortgage faster. With four tips to help you reduce interest rate payments and even your mortgage term, we’ll help you become financially independent from your home quicker than you thought possible.
1. How to shorten your mortgage repayment term
Just because your lender has set a repayment term of 25 years, it doesn’t mean you have to adhere to it. Of course, you must pay off your mortgage in full, but you can shorten the term if you can afford higher monthly premiums. Doing so will reduce your interest rates as you’ll be paying off your mortgage quicker and in a shorter timeframe.
Say, for example, your mortgage is £200,000 to be paid over 25 years at an interest rate of 3%. Your mortgage repayments would be £948 per month which is just over £84,000 in total interest. If you reduce this term to five years, your monthly payments would be around £3,500 a month and you’d only pay £15,624 in interest, which is a colossal saving.
2. Use lump sums against your mortgage
You can chip away at your mortgage with small monthly overpayments but a lump sum will make a much bigger dent.
Say you get a bonus from work or some inheritance money. Instead of spending or saving it, consider paying off more of your mortgage to reduce the term length and interest due.
However, check with your mortgage provider before doing this as some will cap how much you can overpay in any given year. This is usually around 10% of your outstanding balance per year.
3. Chip away at your mortgage
Of course, not everybody has a lump sum of cash to throw at their mortgage, but you can chip away at your mortgage with regular overpayments.
You can agree to up your monthly mortgage direct debit every month, for example, which will again reduce your term length and the interest you pay on your home. This applies to most mortgages, including fixed-term deals, but check with your lender as there’s often an overpayment limit of 10%. Exceed this and you might get charged.
If you’re not tied into a fixed-rate deal, you can usually overpay without a charge.
4. Switch to a better deal
We’ve saved the most obvious for last, but it’s still criminally overlooked in the UK. Of course, we’re talking about switching to a better mortgage deal to reduce your interest rates and monthly payments.
A top tip is to shop around and don’t automatically renew with your current lender, as a better deal may lie elsewhere.
It’s also important to take note of any set-up fees as these are often the compromise for lower monthly repayments and interest rates. Some setup fees even have interest rates attached, so it’s worth reading the fine print or speaking to a mortgage expert before committing.
Conclusion
At Cedar House Financial, we have years of experience in the mortgage industry and thanks to vast access to the market, we can often find the perfect deal for you and your family.
With mortgages for every circumstance, speak to our team of experts on 020 8366 4400 or email enquiries@cedarhfs.co.uk to get the mortgage ball rolling.