Imagine this.
Yesterday was payday. This morning, as is ritual every month, you log on to your banking to check everything is in order.
But there’s something different this time.
The Mortgage payment: it’s still there.
You blink. You blink again. It’s still there. You check last month’s statement. The payment went out on this date. It goes out on this date every month.
Then you remember.
You paid your Mortgage off early. That 25 years you originally signed up to was reduced and you’re now Mortgage free.
You must have found out about the Secret.
Confession
Ok, we confess. It’s not really a secret. Or if it is, it’s not a very well kept one. However, it’s good to be reminded once in a while that if you can get your finances in the right place, you don’t have to resign yourself to having a Mortgage for the next 20 – 25 years.
The not-such-a-secret-secret
There are two ways of paying your mortgage off early:
- Overpaying on top of your monthly mortgage payment e.g. overpaying sums (big or small) here and there.
- Reducing the overall mortgage term.
As with everything there are some very important things to consider:
Affordability
Number one most important question: Can you afford it?
If you’re thinking of reducing the term of your Mortgage (e.g. 25 to 15 years) then it’s back to the same old thing we’re always saying, you will need to meet the Affordability and Stress Test criteria the Lender sets.
Penalties
When you tie in to a fixed rate or tracker Mortgage there is usually a penalty attached if you decide to pay it off early. You can still increase your monthly payments but most (not all) Lenders will only allow you to overpay up to 10% of the outstanding balance per year.
Savings
Sounds strange, but it is worth finding out if you can save more by putting your money away rather than overpaying on your Mortgage payments. If you can get a Savings account with a brilliant interest rate you could see more of a return than if you paid your Mortgage off early.
Debts
The interest rates on Credit Cards & Loans usually mean these are more expensive than mortgage interest rates the longer you leave them unpaid, particularly with mortgage rates at record lows. Anything you would save by paying off your Mortgage earlier might be outstripped by the cost of not paying other debt.
Rainy Day Funds
The priority is clearing any existing debts, but afterwards it is sensible to put aside a rainy-day fund that is available to you if something happens (think boiler, for example). We recommend that having three to six month’s income saved is a good starting place.
Help needed?
If you’re not sure whether you’re in a position to pay your mortgage off early or need a hand finding the right Mortgage that helps you to do this, then we’re here to help. Call us, email us or complete our website contact forms.
