Similar to any other debt, the sooner you clear it, the faster you will be able to relax and start working back on those plans with your extra income. But what tips are there to help get rid of your mortgage within a decade or less?
Take care of your mortgage fees at the beginning
A large number of mortgages come with high fees attached. However, with proper communication with the lender, they often allow buyers to sum up these fees into the overall loan.
As good of an idea, as this is for certain buyers, such as first-time buyers, it actually comes with a few setbacks, thanks to the interest rates. In proceeding with this strategy, in the short term, you will reduce the amount you have to pay out, but in the long term, you will pay significantly more when the interest is added.
It is important to take care of your mortgage fees from the very start. A small transfer onto the mortgage as little as a £500 fee at the start of your mortgage could easily turn into thousands by the time you are finally finished paying.
Think about overpaying your mortgage
Overpaying your mortgage means that you will get to reduce your debt a lot quicker while paying less in interest and saving some money that you wouldn’t be able to otherwise.
However, this does not mean that you should invest all your savings and extra money on mortgage payments. Make sure you still have some saved aside for any sort of emergency or any unexpected financial responsibility. It’s wise to check if there are any early repayment charges with your lender.
Use ‘Found’ money to help you make payments towards the mortgage
Tax refunds, bonuses at work, and unexpected windfalls can be a great help in order to get rid of mortgage debt as quickly as possible. If you can afford to use it all, do it, if not, at least use a small part to help you out and make a big difference.
Some mortgages allow large overpayments so make sure yours is one of them. By making an overpayment on your mortgage you could pay your debt in a shorter time to get that weight off your back and save up a large amount that you would otherwise be increasing from interest.
Remortgage to a shorter-term
Remortgaging can be beneficial and could save you a lot of money and time. A lot of people end up getting a mortgage for 25 to 30 years.
However, by refinancing into a 15-year loan with lower interest rates (given you can afford to refinance your mortgage) you would pay off your mortgage 10 to 15 years earlier and save thousands of pounds from interest alone.
When you lessen the term of your mortgage, it means you will entail an agreement with your lender, which for those homeowners who have achieved a change in their financial circumstances and can afford higher payments each month is more beneficial.
Remortgaging comes with different charges and fees, but getting rid of your debt faster is always beneficial. It is important to point out that a quicker payoff means higher monthly payments.
Once again, reducing the term on your mortgage allows you to get rid of your debt a lot faster than you had previously planned. However, do not get carried away and over-stretch yourself in case you are put in a difficult situation where you will have to take care of certain responsibilities first.
Pay down other debts
One of the most important rules of repayment is to get rid of the highest debt first as they are the ones to generate the most interest. By doing this you will avoid the interest building up and making it more difficult to pay them, but it will also help you out saving money and give you a chance to clear other debts.
Pay the principal early
During the first few years of your mortgage, you might notice how the principal is not reduced and you only seem to be paying interest. This is caused by compound interest. The best course of action is to try your best and clear up some of the principal as fast as possible. You will then start seeing a difference, as by lowering the capital, the corresponding interest will reduce which can help you cut several years off the term of your loan.
Be frugal and save up
When trying to pay your mortgage as soon as possible, being frugal has proven to be very helpful. Focus on what’s necessary and luxurious so you can save. This additional money can be invested into overpayments and clearing your debt faster, cutting down several years off your mortgage loan.
Sit down and start writing down the things that are luxuries in order to reduce spending. You can even write down a budget and set up a goal to help you make the payments.
