Overpaying: The Key to Becoming Mortgage Free and Saving Thousands
One of the few things all homeowners have in common is the desire to become mortgage free. However, most mortgage payers simply resign themselves to the fact that they will be tied to their debt and all associated borrowing costs for decades to come.
Not realising they could be needlessly throwing away tens of thousands of pounds.
New figures published by the Homeowners Alliance suggest that the average homeowner now pays around £3,154 in interest each year on their mortgage. Given the average 25, 30 or 35-year mortgage term, this equates to an astonishing amount of interest paid over the life of the typical home loan.
Both the Homeowners Alliance and the Council of Mortgage Lenders are advising mortgage payers to seriously consider overpaying where possible.
The vast majority of lenders allow mortgage payers to pay over the agreed monthly instalment, either on occasion or on a regular basis. Those who do so often stand to make significant savings, by repaying their mortgage early and reducing overall borrowing costs.
According to the Homeowners Alliance, overpaying by just £60 per month can, for some mortgage payers, reduce the length of the mortgage term by as much as three years. Even when accounting for any early repayment fees that may apply, this could still amount to a significant saving.
The higher the monthly overpayment – typically limited to 10% without incurring additional fees – the faster the loan is repaid. Depending on the length of the term and the size of the mortgage, this could equate to tens or thousands of pounds in savings and becoming mortgage-free several years earlier.
Refinancing to Save Money
Another option that can lead to significant savings is refinancing at the right time. This can be particularly useful for homeowners approaching the end of the initial fixed-rate introductory period.
When the initial two-year, five-year or ten-year fixed-rate period of a mortgage comes to an end, the loan is automatically switched to the lender’s standard variable rate (SVR). At which point, the APR on the loan could jump significantly, resulting in a much higher monthly payment and significantly greater long-term debt.
Prior to this automatic transition, borrowers have the option of comparing the market to find a better deal from a competing lender. With the help and support of an experienced broker, being switched to an uncompetitive SVR with an elevated APR can be avoided entirely.
Even at a later date, it is still possible to refinance to a more competitive deal and reduce overall mortgage debt by thousands, though the earlier action is taken, the higher the potential for making significant savings.
For more information on any of the above or to discuss the options available for reducing your mortgage debt, contact a member of the team at UK Property Finance today.