12 October 2018
How to pay your mortgage off early
Borrowers who are sitting on their lender’s standard variable rate could spend many more years paying back their mortgage than is absolutely necessary. The average five-year fixed-rate mortgage is less than 3 per cent but many borrowers are on SVRs of 4.24 per cent (Halifax) or even 5.24 per cent (Barclays). If you haven’t switched mortgage for a while you could be pleasantly surprised to find that you qualify for a much cheaper rate, saving you thousands of pounds in interest and shaving years off your mortgage term.
For example, a borrower with a £200,000 mortgage on a £400,000 property paying a typical SVR of 4.24 per cent, with 23 years left on the term, could save £67,985 by switching to a ten-year fixed-rate mortgage with Coventry building society pegged at 2.35 per cent. As well as saving tens of thousands of pounds in interest, the borrower would reduce their mortgage term by five years.
Overpaying is another easy way of reducing your mortgage term and clearing the balance more quickly. If you have savings earning next to nothing in the way of interest, it makes sense to use these to pay down the mortgage, as long as you ensure that you keep several months’ worth of outgoings back to cover emergencies.
Although interest rates have risen twice in the past year there is no guarantee that they will rise again in the near future with Brexit and so much uncertainty on the horizon. Indeed, the next move in interest rates could as easily be downwards. Borrowers need to act according to their own circumstances rather than something that may or may not happen in the future, and seek advice from a broker.