Looking for Ways To Pay Off Your Mortgage Early?
Here’s the bottom line: a mortgage is debt. For a number of years we have relied on steady increases in our salaries as a way of paying off our ever increasing levels of debt. The big problem we currently face is low inflation. Basically, this means you can’t rely on large pay increases to help reduce debt…well, not in the short term. Secondly, the tax incentive that made many borrowers hold onto their mortgage was effectively abolished in 2001.
What is an overpayment? This type of mortgage loan lets you overpay a certain amount of cash each month which has an added adavantage of decreasing the life of your loan. Here’s an example: You have a £100,000 mortgage taken out over a 25-year period at 6%. By overpaying to the tune of £100 a month could actually save yourself around £27,000 of the repayments AND pay off your mortgage in 19 years.
The general idea is good, especially if you have spare cash at the end of each month but be aware that some lenders require you to overpay by a set minimum amount. Failure to pay in the set amount will result in your hard earned cash becoming nothing more than an interest free loan courtesy of you! Paying in more than the minimum means your interest payable will be recalculated from the following month.
Another type of mortgage is the offset: your balance is recalculated on a daily basis. This can help you pay off your loan even quicker when you pay a extra over the top each month.
Many of the current loans have had aspects of overpayments bundled into them but be aware that most of the lenders have set minimum/maximum amounts that you can overpay.
If you’ve managed to pick up fixed or discounted rate deal read the paperwork before you decide to overpay. Again, many lenders have placed a premium on early settlement of your mortgage and these early redemption penaltys can result in you paying out thousands of pounds just to close your mortgage account.