BEING mortgage-free is many homeowners’ dream, and property expert Ben Merritt explains how you can make it a reality in just 10 years.
Mr Merritt, director of mortgages at Yorkshire Building Society, gives five tips for clearing this debt quickly – saving you money on the amount of interest you need to repay.
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If you take out a loan to buy your house, you will agree to paying back a minimum amount to your lender each month.
But if you overpay on your mortgage, it means that you pay more than this minimum amount.
You can do this by sending over extra cash regularly per month, or as a lump sum less often.
The reason why you might want to consider doing this is that you’ll be paying back less interest – and saving yourself cash in the long-run, Mr Merritt said.
But it’s important to remember there are hidden costs of doing so – and it might not be for everyone.
If you have debts with a higher interest rate, it might be worth paying those off first.
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The majority of lenders will also make you cough up for an early repayment charge if you overpay more than 10% of the outstanding balance on your mortgage per year.
Make sure you read the small print of your contract to avoid hidden costs.
Here’s his top tips for clearing your loan and being mortgage-free in just 10 years.
Every little helps
While a cost of living crunch plays havoc with household budgets up and down the country, many will not have a lot of cash to spare while bills soar.
But upping your mortgage repayments by £50 a month could save you thousands of pounds in interest, Mr Merritt said.
“Paying £50 a month more on a typical £200,000 mortgage could save you £4,000 in interest and mean you’ll be mortgage free 18 months earlier,” he said.
Reduce your mortgage term
Your mortgage term is the amount of time it takes to pay off your loan.
A short-term mortgage is usually considered to be 20 years or less, while a term of 30-years is classed as a longer term.
Reducing your term – making it shorter in length – will mean you’ll have less time to pay off your mortgage.
That will mean you have to pay back a higher amount to pay it all off in time – but you “will become mortgage-free faster”.
Get your house revalued
If you haven’t had your house revalued in a while, it might be an idea to get one booked in.
It could be likely that the value of your home has increased, especially as house prices have been soaring to record highs recently.
This could mean your equity has improved – which is in your favour.
“You may be able to unlock more cost-effective mortgage deals when it’s time to remortgage,” Mr Merritt explains.
“Keep your monthly repayments the same as you’re used to paying, or more if budget allows, and you’ll be paying it off quicker without even realising.”
Check your deal
You might find that there’s a better mortgage deal you could nab if you shop around.
The first thing to do is make sure you’re not paying over the odds on your standard variable rate.
That’s the rate you’ll be moved to once your fixed rate or tracker mortgage ends.
Experts have warned that it’s better to check your mortgage deal now a head of when the Bank of England is expected to raise interest rates later this year.
“Seek advice if you’re unsure what’s the best deal for you; and remember we’re in a rising rate environment,” Mr Merritt said.
Speak to your lender
If you’re seriously considering overpaying on your mortgage, it’s best first to talk to your lender.
They will be able to help you figure out the most efficient way of doing this – and they know your financial situation to help you make good decisions.
“You could also speak to a mortgage broker or financial adviser too, but ultimately, it’s important you’re aware of all the facts before making any decisions,” he said.
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