The average mortgage term is 25 years. Provided you’re on a repayment mortgage you should be mortgage free a mere quarter of a century after you first arranged it. That is providing you make all the repayments in full and on time.
During that time, you will have paid tens or possibly hundreds of thousands of pounds in interest. If you overpay your mortgage it might mean that you can pay your mortgage off sooner – sometimes even years earlier and cutting that interest substantially.
With a 25-year mortgage paying off a lump sum at the start will cut the overall interest and means you could become mortgage free in a shorter term.
Overpaying by 10% each month will also make a surprising difference to the final cost of owning your home – quite how much will depend on your exact circumstances.
Paying off early means more money in your pocket, and a home which cost you less. But actually, doing so may not always be straightforward, and you might want some help from a Continuum mortgage expert adviser.
But should you pay off early?
With mortgage interest rates currently so low, some industry experts argue that there’s no point in paying off your mortgage early. The counter is that overpaying when interest rates are low means you’ll have a smaller mortgage to pay if they go up.
Certainly, there are other ways to spend your money. So, if you talk to a Continuum adviser about repaying early, the first thing we might look at is your other debts with higher interest rates – and whether you should pay them off first. They can help you make sure you are ready to start overpaying and work out how much cash you can spare to do so.
Can you overpay?
If it is time to think about overpaying, your Continuum adviser can help you see the most cost-effective way to do so – or even if it is going to be possible. With some lenders, you may be charged for overpaying your mortgage. He or she will look at the small print to see if paying your mortgage off early or making a payment over an agreed monthly limit without penalties.
However, most now let you overpay up to 10% a year, while flexible mortgages let you overpay your mortgage and even draw back the money if you need it without charge.
What is the best way to overpay?
Your adviser will also look at the best way to overpay. It is not as simple as putting in a little extra each month when you have some spare cash. You need a strategy to ensure that your extra payments work as hard as possible.
If your mortgage interest is charged daily, then the sooner you make the overpayment the more you save. If it’s charged annually, you need to time your overpayment so that it counts towards the calculation of the interest for the year.
Get the best deal. Then get the best deal again.
There is no point trying to overpay your mortgage if you don’t have the lowest possible repayment to start with. Your adviser will help you find the best deal for your immediate needs.
So, whatever your plans, a call to the Continuum team could mean cutting the cost of owning your home.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.