For first-time buyers, saving for a house deposit and then getting a mortgage can seem like a huge task. And, after securing a mortgage, homeowners may go on to look for ways in which they can reduce the amount of time they take to pay it off.
According to the Money Advice Service, most mortgages run for 25 years – but this can be longer or shorter.
And, whether it’s to save money in the long-term or to be able to enjoy having one less outgoing each month, becoming mortgage free as soon as is realistically possible can be an aim for many.
That said, it may not be something everyone will want to do, or be able to afford to achieve.
However, for those who do want to become mortgage free sooner rather than later, there may be some considerations to make.
Richard Hayes is the CEO and co-founder of digital broker Mojo Mortgages, and he has suggested some ways in which borrowers could potentially shave years off their mortgage term.
Speaking to Express.co.uk, he addressed one particular factor to consider, which could potentially save money in the longer term.
“Overall, let your budget lead your term choice not the other way around,” he said.
“Thirty-five or even 40 year mortgage terms are becoming the default as they give consumers the lowest possible monthly premium.
“But you’ll pay back much more in the long run, so try to pay what you can afford, and you’ll become mortgage free sooner rather than later.”
Another financial decision highlighted by Mr Hayes looks at the possibility of making overpayments when homeowners can afford to.
“Most lenders allow you to overpay by 10 percent each year while on a fixed term,” he said.
“Overpaying your mortgage means you’ll have less to pay in future years and can therefore own your home outright earlier.”
Cutting years off a mortgage could also be done by shortening the mortgage term, however borrowers should be aware that this would affect their monthly payments.
“Another way to become mortgage free sooner is to shorten your mortgage term,” Mr Hayes said. “However, this will mean that your payments will be spread over a shorter period of time.
“This will result in your monthly payments increasing, so make sure you are in a financial position to meet these higher costs.”
Keeping an eye on the mortgage type and rates could also be important.
“If you’re on an interest only mortgage, switch this to a repayment mortgage to ensure you are clearing the capital and interest,” he said.
“Also, make sure you are reviewing your mortgage regularly to ensure you’re on the best rate. If you’re on a variable rate you could be paying double the interest.”
Should borrowers find themselves with some money to spare, it may be they look into whether it could be financially beneficial to use the savings to offset the mortgage.
Mr Hayes explained: “If you’ve got cash in a savings account and it’s not earning much interest it could be more beneficial to offset it against your mortgage and reduce the amount of interest you pay.
“Depending on the total offset savings amount, your mortgage term could be cut by months or, even, years.
“Remortgage to make sure you are always on the best rate but try not to add big fees to your balance each time you do so. Some people switch deal every two years and with this may add £1,000 or £2,000 to their balance each time.
“A good broker will calculate whether this cost is worthwhile. Repeatedly buying the best rate on the market may seem like a good idea, but the mortgage balance will sometimes reduce more slowly with this capital being added back on.”
Published at Sat, 09 May 2020 20:25:00 +0000