As you move up the property ladder to accommodate your growing family, you inevitably end up with a larger mortgage. The good news is that there are some things you can do make in-roads and clear your debt faster. In all instances, it’s important to get advice from an independent mortgage advisor. Here are some of the ways you pay off your mortgage quicker:
Reduce your repayment term
When you take out a mortgage, the standard term is 20-25 years. However, lenders are often flexible when it comes to your term and as long as you can afford slightly higher monthly payments, you can reduce the term down to as little as five years. The shorter the term, the cheaper it will be overall. If you borrow £200,000 over 25 years at 3% interest, you’ll pay back £84,527 back. If this term is reduced down to 5 years the interest repaid would be just £15,527. Obviously the shorter the term the more you’ll pay each month so make sure you can afford the repayments.
Overpay your mortgage
If you increase the amount you repay each month, even by just a small amount, this will shorten your mortgage term and reduce the interest paid. Most banks allow you to overpay 10% of your loan amount without penalty even with a fixed rate deal. Talk to your lender or financial advisor to find out how much you can overpay on the deal you’re currently on.
Invest any inheritance or windfalls
If you come into money via inheritance, workplace bonus or dividends, you could pay this into your mortgage. This will reduce the amount of interest you pay but you will need a fully flexible mortgage if you want to do this without a financial penalty. Many lenders cap this at 10% but check with your lender or mortgage advisor.
Offset your mortgage
If you have savings but don’t want to put this into your mortgage, you could use the cash to reduce your mortgage debt. Offset deals take your savings balance and subtract it from your mortgage debt, only charging interest on the remainder. If you have a £200,000 mortgage and £50,000 savings, you’ll only pay interest on the balance of £150,000.
This means that you will pay less interest overall and clear your debt faster if your monthly repayment is the same. The savings need to be held with the same bank as your mortgage and you won’t earn interest on your savings. However, this makes financial sense.
Remortgage
Shop around for the best mortgage rate especially when you come to the end of a fixed rate. Make sure you keep your credit score in good order and talk to a mortgage advisor a few months before your fixed rate deal is due to end otherwise you’ll go on to the lender’s standard variable rate which.
Clyde Property is a leading independent, multiple award-winning estate agent with over 30 years’ experience in selling and letting property in Scotland. Just call your local Clyde Property branch today, for friendly, impartial advice on letting and renting property.
