I’m a mortgage expert and here’s how you can pay off your home loan early
A MORTGAGE will most likely be the biggest debt you’ll ever take on - but there are ways to pay it off quicker and save yourself thousands in interest.
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 choose to overpay by sending over extra cash regularly per month, or as a lump sum less often.
The Sun has spoken to homeowners previously about why they’re paying off their mortgage early - such as Charlotte Jessop, who’s already paid an extra £30,000 off her debt.
You’ll be paying back less interest - and saving yourself cash in the long-run - by overpaying on your mortgage.
But according to life insurance broker LifeSearch, just 7% of homeowners in the UK paid more than their minimum repayments in the first six months of 2021.
That’s why The Sun sat down Quilter mortgage expert Karen Noye to see whether it’s really worth piling your savings into paying off your mortgage.
Most read in Money
Karen Noye, 41, has over 12 years of experience in property and said the savings you can make paying your home loan off early are “significant”.
She said: “It’s always worthwhile clearing any debt, especially in the current climate while interest rates are so low - even in spite of the Bank of England increasing the base rate.”
“If you get rid of more of your mortgage now, you’re not going to be hit as hard in future by any interest rates rises.”
But there are hidden costs to be aware of and it might not be for everyone - here, Karen explains all you need to know.
Clear bigger debts first
Before you decide to overpay on your mortgage, you’ll need to sit down and go through your finances first.
If you have debts with a higher interest rate, Karen advises to pay those off first.
Mortgages generally have lower interest rates than most other debts, so it’s worth prioritising tackling others before you start planning overpayments.
“In terms of who would be better off paying their mortgage off early, a lot of it comes down to your individual circumstances and whether it is affordable for you,” Karen said.
“If you have any other outstanding debts, look at which one has the highest interest rate and work on getting rid of that.”
Reduce your mortgage term
Another way to pay off your home loan earlier is to shorten your term when re-mortgaging.
Often, many homeowners are more focussed on getting a better interest rate when looking for a better deal than reviewing their mortgage term.
But if you take out a longer mortgage term than you actually need, you could be paying more interest in the long-run.
“Reducing your term will reduce your interest and you will pay your mortgage off quicker,” she said.
“Just by taking a few years off your mortgage term, ultimately the difference can be significant - you could be saving thousands of pounds.”
Watch out for hidden costs
If you do decide to clear your mortgage early by overpaying, beware of hidden costs.
The majority of lenders will make you cough up for an early repayment charge if you overpay more than 10% of the outstanding balance on your mortgage per year, Karen said.
It means that you’ll need to read the small print on your contract to make sure you’re not slapped with a charge.
“Look at terms of mortgage carefully to avoid paying penalties and charges - if you end up having to pay this, that’s defeating the object of paying your mortgage off early,” Karen added.
Little and often
It’s a good idea to consider making overpayments on your mortgage regularly if you can afford to, Karen said.
The lower your mortgage balance, the smaller the chunk of money you’ll have to pay in interest.
For example, the amount of interest you’ll pay on a mortgage balance of £100,000 will be lower than the same interest rate you’ll be paying on a £150,000 loan.
That means setting up small repayments up each month could be worth it as while your balance goes down, the amount of interest you pay does too.
“You are potentially better off making overpayments regularly because it has an immediate effect on your mortgage balance,” Karen said.
“If you pay £750 per month and can afford to round this up to £800, little things like that can make quite a difference.”
Don’t forget an emergency fund
Make sure you are not sacrificing any savings going into an emergency fund by overpaying your mortgage.
This is especially important as families are facing a cost of living crisis, with energy bills, food prices, transport and fuel costs soaring.
READ MORE SUN STORIES
It means if there’s an emergency - like if you lose your job or your boiler breaks - you’ll have enough cash to cover your costs without falling behind on your bills.
“We recommend you have an emergency fund to cover at least three months of cash needed to pay bills,” Karen said.