Dealing with a mortgage can be very stressful and clearing the debt can be a lengthy process depending on the size and expected duration. In addition, it can be extremely difficult to keep up with mortgage repayments.
However, many people consider owning a property to be a success in itself, whereby currently 40% of UK households have some kind of property debt resulting in 11.1 million mortgages.
The financial implications mean that most people are looking to become mortgage free as soon as possible and without suitable advice or direction, this is rarely achieved. The following tips are a successful method for paying off your mortgage earlier than scheduled.
Overpayments
If the lenders allow for overpayments then its recommended to reduce the capital as much as possible. An overpayment can happen in the form of a marginally bigger monthly contribution or a single lump sum, but always check your mortgage terms and conditions as lenders may have additional charges which could counteract the amount you’d like to contribute as an overpayment.
You might come into a considerable sum of money from various sources whether it’s claiming back PPI or inheritance. Even though it’s tempting to spend the additional money in a different way, the benefits of reducing the mortgage will be considerably more when you’ll be paying interest on a lower sum. In the long-term, this will save you money.
Remortgage
A common strategy is to remortgage from your initial agreement to a better deal which is more suited to your financial situation and take advantage of new offers which weren’t available when the initial agreement was undertaken.
The best time to consider to remortgage is when the fixed rate period is concluding and the variable rates are significantly higher than initially expected. Even though many financial institutions offer quick mortgage switches, the process of finding a better offer might require substantial research if you’re looking to perform this yourself or a fee for a professional broker service.
Reduce Mortgage Terms
Similar to overpayments, however, the difference is that generally, overpayments allow for a specific percentage of overpayment whereas a reduction in mortgage term leads to an increase in the agreed monthly payments.
If you have the financial capability to increase the monthly payments then this is recommended as it will result in a lower total amount of interest being applied to the mortgage. This will reduce the time to paying off the mortgage without compromising on other important benefits from the mortgage which are equally important.
Consider your initial payment amount
In a perfect world you’ll have saved enough to pay for your house in full and be mortgage free, but generally, this is pretty impossible to save unless supported elsewhere.
However, any additional contribution to your initial payment amount will be beneficial in the long-term whereby if you can increase from 5% to 10% or even 20%. Then the payments or term will be more manageable or provide the ability for overpayments.
Realistic mortgage application
Even though most lenders will identify what will be a realistic repayment schedule based on your income and monthly outgoings. It’s important to ensure that you’re being realistic in your mortgage application.
Whether you might be able to contribute most your monthly income to the mortgage, there are plenty more requirement payments that need to be factored. Overstretching to an unrealistic mortgage will be difficult to maintain and could result in fines if unfulfilled.
Downsizing
A rather drastic approach but a quick solution to pay off a mortgage. Downsizing will allow for the value of the property to counter the remaining mortgage value and in-turn allow you to enjoy a mortgage-free lifestyle.
If downsizing in size of the property is out of the question but if you’ve made a profit on your initial investment or there’s a great purchase available, will provide the ability to pay off a mortgage.
Alternatively, this could be an opportunity to reduce down to a smaller mortgage which you would pay off quicker than the original.
Regardless of the reason that put you in this situation or if you’re planning ahead of your first mortgage application. The be practice is to clear the debt as soon as possible, especially with consideration to the total repayment value following the addition of interest and how long until you actually make an impact on the capital.