Paying off mortgage ahead of schedule may seem like a daunting endeavour. After all, we’re talking about paying off hundreds of thousands of pounds. However, it’s actually a pretty feasible goal that can save you money in interest payments, increase your equity and even shave off years off your payment schedule.
For retirees, paying off mortgages can help increase cash flow, especially when transitioning to a fixed income. For others, getting rid of their mortgage saves them from the psychological pressure of being continually indebted to enormous amounts of interest payments.
Let’s look at 3 ways you can join the debt-free homeowners’ club by paying off your mortgage early:
1. Make bi-weekly payments
You can speed up the paying-off process by making bi-weekly mortgage payments instead of one-month payments.
The idea is simple: you make half of your monthly payment every two weeks. For instance, if your usual monthly payment is £1000/month, you’ll be paying £500 every other week. This way, you’ll make 13 months of full-sized mortgage payments a year instead of 12. The reason homeowners prefer this tactic is that it’s barely noticeable in their monthly budget.
Let’s look at some real-life numbers: if you’re paying a £200,000 mortgage over a 30-year period with a 5% interest rate, making bi-weekly payments will save you £34,328 in interest, knocking off 5 years off your mortgage!
However, before you make a decision, make sure your lender accepts bi-weekly payments. If they don’t, you can always set aside the bi-weekly payments and pay it in one shot each month.
2. Make extra payments each Month
An alternative is to make an extra payment to the lender each month. This means that the additional payment will be used to pay off the outstanding loan—this reduces the amount you borrowed and reduces your monthly interest charges.
For homeowners who inherit money, get large bonuses or sell valuable items, using the extra cash to pay off the mortgage is a great idea; it can save you substantial amounts in interest charges and may even get you ahead on your mortgage schedule.
If you can’t afford to make extra payments, paying any extra what you can afford will make a difference. For instance, some people round off their odd payment amounts, such as £1,056 to £1.100, with the extra amount marked for paying down the lender. Even an extra £50 or £100 will add up faster than you think!
Remortgaging to pay off your mortgage early is ideal if you’re able to lower your mortgage term, getting a new deal with a shorter mortgage period means you’ll have to pay significantly less in interest.
Plus, remortgaging is a great way to release equity and switch from a Standard Variable Rate (SVR) mortgage to a fixed rate mortgage. In fact, nearly 39,000 homeowners remortgage every month in the UK.
However, keep in mind that your savings should cancel out the fees associated with remortgaging.
If you want to learn more about how to save money on your mortgage payments, contact us today, we can assist you in finding the best deal to suit your needs.