4 October 2017

The Mortgage Clinic: How to repay your mortgage early


A mortgage is probably the largest commitment that we will ever take out over the duration of our lives, and if taken out over 25 or 30 years we are never truly free of the largest monthly commitment until it is repaid in full. Of course taking out a mortgage and having the end goal of owning your home instead of renting is a much better idea as you will have an asset at the end, and will not be liable for monthly rent payments that you will never see again. If you already have a mortgage then we aim to show you ways to repay this quicker and save years of mortgage payments and interest. 

Overpaying monthly or annually

We are in an environment where interest rates are the lowest they ever have been! The Bank of England sets the base rate of interest and currently it is 0.25%, subsequently the mortgage deals available with banks and building societies that we have access today are extremely competitive. There are a wide range of deals available that will allow you to overpay your mortgage by up to 10% of the total outstanding mortgage balance without incurring an early repayment charge, check your mortgage conditions or check with us to make sure before deciding to do this as early repayment charges can be as high as 4-5% of the total outstanding balance, and should be avoided at all costs. Common sense tells us that overpaying a mortgage will shorten the number of years and save you money on interest accrued over the period of your mortgage, so this is an excellent strategy to try and pay your mortgage back sooner.

A plastic house sits on pound coins

Review your options when your fixed interest rate is due to expire or the fixed terms

About 3 months prior to your fixed interest rate expiring or if you have a variable or tracker rate that you may be tied into, you should be aiming to assess your options over the next period of your mortgage.

Questions to ask..

What is the best deal my current lender is going to offer?

Can I get a better offer by moving lenders to a new bank or building society?

Can I shorten the number of years at this stage?

Over time in the right market conditions your property should gain in value and build equity within it, you have been repaying your mortgage so your remaining balance should also be decreasing. This index is called the ‘loan to value’ and is what lenders use to determine how good the mortgage deal that is available to you, the lower the loan to value the better the mortgage deal. By moving lenders you have the opportunity to have your home valued and get access to these better ‘new customer’ deals. Your existing lender may only use a property market index which may not reflect the true value of your property.

Changing lenders is called ‘Remortgaging’ and all costs should be taken into account to make sure this is the correct thing to do. At The Mortgage Clinic we can help you assess all of these options and perform a total to pay analysis for you helping you to determine the best way forward. Remortgaging to a better deal each time and shortening the number of years again is a very effective strategy and can save £100s to £1000s when aiming to repay your mortgage quicker.

Remortgaging combined with overpayments if done correctly should provide a sound strategy which will help you save years of mortgage and interest payments and accelerate your plans to be mortgage free. To discuss this or any of your mortgage needs please feel free to contact us at The Mortgage Clinic for Independent Mortgage Advice. Check out our reviews from happy customers here.

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