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How to pay off your mortgage early

How to pay off your mortgage early

An update from BB Mortgages

By James Carpenter

“I believe in excellent service and flexible appointment times.”

James Carpenter

Buying a home will probably be your biggest financial commitment and so for many people, the idea of paying your mortgage off early would be a dream come true.  If this is something you’re considering, then this post will help you to plan how and when to pay off your mortgage in a way that suits you and your financial circumstances best.

Is it worth paying off your mortgage early?

If you’re in the fortunate situation where you’re considering paying off your mortgage early, whether that be by making overpayments over the course of time or making a lump sum payment to clear it in one go, then it’s worth considering whether it’s actually the best option for you given your specific circumstances. Here are a few things to think about before making your decision:

Pros and cons of overpaying or paying off your mortgage early

Pros 

·       The faster you pay off your mortgage, the less interest you’ll pay overall.

·       The money you save on interest is likely to be more than you’d make by putting the money in savings.

·       Paying your mortgage early allows you to free up the money later in life for things like travel.

·       When your mortgage is paid, you’ll have fewer financial commitments for your loved ones to worry about in the event of your death

Cons

·       The money may be better used to pay-off higher interest debts such as credit cards or unsecured loans.

·       There may be investment opportunities available that would offer higher returns than you’d get by paying your mortgage early.

·       Consider whether you have sufficient money saved for retirement (or any other major financial goals you have) and whether it would be more sensible to put your additional funds towards this rather than your mortgage.

·       You could put yourself at financial risk if you use all of your savings to pay off your mortgage early and leave yourself with an empty pot in case of emergencies, such as urgent home repairs, job loss or illness.

·       You may have to pay an early repayment penalty fee.

5 Tips to pay off your mortgage early

Now that you’ve considered all the pros and cons, here are our top tips to help you clear your mortgage faster:

1.     Increase your monthly repayments

It’s amazing what a difference just a small monthly increase to your mortgage payments can make. Check your budget and if you have some disposable income left after your monthly expenses are paid, then it could be worth increasing your monthly mortgage repayment. Just an increase of £20 per month can end up saving you thousands over the course of a 30-year mortgage.

Make sure you get the balance right though and don’t overstretch yourself financially. If you have other higher interest debts, then prioritise those before increasing what you pay on your mortgage.

How to do this:

Just contact your mortgage provider and they can arrange to increase your monthly direct debit. As an overpayment is not part of your contractual agreement you can choose to change it back again anytime. Alternatively, you can set up a standing order to make the additional payments each month.

2.     Make additional repayments

You might not be in a position to make regular overpayments but if you receive occasional lump sums such as a work bonus or investment dividends, then you might choose to schedule additional mortgage repayments throughout the year.

An additional £1200 per year on a 30-year fixed rate mortgage of £250,000 with an annual percentage rate (APR) of 5% would reduce your loan term by over 3 years and save you more than £25000 in interest.

*(Calculation taken from https://www.forbes.com/advisor/mortgages/pay-off-your-mortgage-early/)

How to do this:

Most lenders will allow you to pay an additional 10% each year without incurring a fee, but it’s a good idea to check the terms of your mortgage agreement so you know how much extra you can pay without incurring an early repayment charge. If you’re not sure, then just contact your mortgage provider and they’ll be able to let you know how much you can pay without fees.

3.     Re-mortgage

It may be that you can pay off your mortgage sooner just by switching to a loan with a shorter repayment term. By doing this, you may also qualify for a lower interest rate so could end up saving yourself even more money. As always, make sure you’re aware of all the costs involved and that the overall savings are worth any upfront fees you may have to pay.

Not sure if re-mortgaging is the right option for you? Take a look at our blog post, 5 Reasons to re-mortgage now.

4.     All of the above!

By doing just one of the options above, you can cut some serious time (and expense) off your mortgage. Of course, if you can do all three, then the savings could be even bigger! Check your budget and work out what makes most sense for you. Maybe you have a spare £20 per month you can put towards your regular repayments AND you get a bonus every year that you can use for a one-off payment. 

We always suggest regularly reviewing your mortgage to see if you could be on a better deal. If your home has increased in value since you bought it then there’s a good chance, you’ll qualify for better interest rates – and if you’ve been making overpayments too, then that chance is even higher!

5.     Speak to a mortgage adviser

It can be difficult to know which options will save you the most money and we recommend that you speak to an expert before making a decision.  A mortgage adviser will look at your financial situation and will be able to suggest how best to pay off your mortgage early – or if this is the best way for you to use your surplus income.

Here at BB Mortgages, we offer complimentary consultations with one of our experts so if you’d like to talk with us about your options, book your consultation now!

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Just select your time and one of our advisers will contact you to arrange the rest.

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Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.


Ellen King

BB Mortgages
2019-09-04T15:53:10+01:00

Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.


Miss Knight

BB Mortgages
2016-03-22T17:24:36+00:00

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.

Mr L

Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

BB Mortgages
2016-09-13T12:38:09+01:00
Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

Miss G

Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

BB Mortgages
2016-09-13T12:43:22+01:00
Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

Mr W

Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

BB Mortgages
2016-09-13T12:48:10+01:00
Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

Mr C

Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.

BB Mortgages
2016-09-13T12:49:06+01:00
Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.
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