Here, we explain some of the ways to do it and what you’ll need to consider.
Are you dreaming of becoming mortgage-free sooner? Paying off your mortgage early can save you a significant amount of money on interest payments and shorten the length of your mortgage term. But before you jump in, it’s important to weigh the pros and cons and choose the right strategy for your financial situation.
In this comprehensive guide, we’ll explore various ways to pay off your mortgage early in the UK, including:
1. Increasing Your Monthly Payments:
- Boost your income: If you receive a salary increase, consider putting the extra money towards your mortgage.
- Cut back on expenses: Analyze your budget and identify areas where you can cut back on spending, such as dining out or entertainment.
- Round up your payments: Round up your monthly payments to the nearest £10 or £100. This small change can add up over time.
2, Making Lump Sum Payments:
- Bonuses or windfalls: Use unexpected income, such as bonuses, tax refunds, or inheritance, to make lump sum payments.
- Selling assets: Consider selling assets like stocks, bonds, or even a second property to generate funds for lump sum payments.
3. Shortening Your Mortgage Term:
- Remortgage to a shorter term: This option may increase your monthly payments, but it can significantly reduce the overall interest you pay.
- Make overpayments: Many lenders allow you to make overpayments on your mortgage, which can shorten the term without requiring a formal remortgage.
4. Combining Strategies:
- Utilize a combination of the above methods: For example, increase your monthly payments while making occasional lump sum payments.
Before you decide on a strategy. consider the following factors:
- Your financial situation: Do you have other debts or financial goals that need to be prioritized?
- Your mortgage terms: Check if your mortgage allows overpayments and whether there are any early repayment charges.
- Interest rates: If interest rates are low, it may be more beneficial to invest your extra money rather than pay off your mortgage early.
Additional Resources:
- MoneyHelper: https://www.moneyhelper.org.uk/en/homes/buying-a-home/should-you-pay-off-your-mortgage-early
- HSBC Expat: https://www.expat.hsbc.com/mortgages/ways-to-pay-off-your-mortgage-early/
Remember, paying off your mortgage early can be a great way to save money and achieve financial freedom. However, it’s important to choose a strategy that aligns with your individual circumstances and financial goals.
What do you need to consider when making overpayments?
It can be a good idea to make extra mortgage payments in order to pay it off sooner, but there are a few things to take into account:
How much extra can you pay?
Up to a certain amount each year, you might be able to make overpayments on your mortgage without incurring fees. This will depend on the type of product you have, and will vary between lenders.
Consult your mortgage lender before making an overpayment to ensure you don’t incur any early repayment penalties (ERCs).
- If your loan has a fixed rate of interest, your lender might let you make annual payments equal to a specific portion of the loan balance without incurring an early repayment penalty (ERC). This is known as an annual overpayment allowance (AOA). You might have to pay an ERC if you exceed your AOA.
- If your interest rate is variable, your lender might allow you to make as many overpayments as you like without triggering an early repayment penalty (ERC).
Since not all lenders will accept this, find out how much you can afford to pay extra for your mortgage first.
HOW TO PAY OFF YOUR MORTGAGE EARLY – UK
FAQ
What happens if you make 2 extra mortgage payment a year?
How can I pay off my mortgage early without penalty?
What happens if I pay an extra $100 a month on my mortgage principal?
How can I pay off my mortgage early?
If you’re in a good financial position and want to start paying off your mortgage early, there are a few ways this can be done: Increasing monthly payments – If your salary increases, you may want to pay more towards your mortgage. Check with your lender to see if you can increase the amount you pay each month. This is called an overpayment.
Can you save money if you pay off your mortgage early?
This reduced the amount of interest charged on your mortgage balance by utilising savings in a linked account. If you decided to set aside the money saved on interest, you could also use that as a lump sum overpayment to repay your mortgage early. How much could be saved by paying your mortgage off early?
Should you pay off a mortgage?
Paying off a mortgage feels good. If you can afford to, there are ways you can repay the debt more quickly, even years earlier. This can reduce the amount of interest you pay, save you money and take you closer to being mortgage free. So how do you achieve it?
Should you pay off your mortgage if you’re overpaying?
If you can afford to make extra payments, overpaying your mortgage means you pay less interest in the future and pay off your mortgage sooner. This means you could save a lot of money. On a £250,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,970 and means you would repay it 11 months earlier.