The most important rule to remember with regards to mortgages is that the faster you pay them off, the less they will cost you. The reason for this is that you will minimise the amount of interest that you will have paid over the duration of the mortgage. And because mortgages are often for very large sums, even cutting just a few years off your mortgage term can save a mortgage holder thousands. Let’s look, then, at ways that people can achieve the very desirable financial goal of paying off their mortgage in under 10 years.
Make as big a downpayment as you can comfortably afford:
The first trick to minimising the time it takes to pay off a mortgage is, of course, to minimise the size of mortgage that you require in the first place. Most lenders now insist that home buyers must make a downpayment of at least 5% or 10% on the cost of the property. So if the cost of the property is £100,000, they would require either £5,000 or £10,000 upfront, with the mortgage then covering the remaining amount.
Clearly, though, if you can afford to pay off more of the property price upfront, then this is hugely advantageous. It’s important though to make sure that you don’t use up all of your savings, as this could leave you financially exposed if unexpected costs were to suddenly occur.
Agree as big a monthly repayment sum as you can comfortably afford:
The set up stage of the mortgage is very important and goes a long way to determining how costly your mortgage will be and how quickly you will be able to pay it off. Clearly, the more you are able to commit to monthly payments, the quicker you will be able to pay off the mortgage. This may be the difference between being able to select a 10 year term or having to opt for a 20 or 25 year repayment plan.
Ensure you are getting a good interest rate:
All your good efforts to pay off the mortgage early may be undone if you have plumped for a mortgage with an uncompetitive interest rate. Shopping around to make sure that you secure a good deal will make it a lot easier to achieve your goal of being mortgage free in 10 years or under.
Make lump sum payments into the mortgage:
If you have opted for a Flexible mortgage then you should be able to make lump sum payments into the mortgage as and when you wish, and each additional payment that you make will reduce the capital amount and mean that your repayment period should reduce. Flexible mortgages usually have a variable interest rate, which means that your monthly repayment amount could go up or down depending on what happens to general interests rates in the economy.
It’s possible, though, that you might instead have opted for a fixed rate mortgage. Normally, a fixed rate mortgage will be set up so that the interest rate is guaranteed to remain the same for a certain duration, before reverting to a variable rate. For example, a 5 Year Fixed Rate Mortgage would have the rate fixed for the first five years. With fixed rate mortgages, there are usually restrictions on altering the repayment amounts, so it’s important to check with your bank. However, many will allow one lump sum payment of up to 10% of the current mortgage value to be made each year, and making those additional payments will greatly help you to reduce the time it takes to pay off the mortgage.
Tip: If your lender allows a lump sum payment on a fixed rate mortgage, make sure that they will also allow you to keep your monthly repayment amount unchanged. Most do but some may sneakily insist that your monthly repayment amount be decreased and this will hamper your efforts to pay off the mortgage early.
Step up your regular monthly repayments if the opportunity arises:
If your mortgage allows you to vary the monthly repayment amounts, then consider increasing the amount you are paying if you are confident that you can afford to pay more. Clearly, the more you pay in each month, the quicker the mortgage will be repaid.
Switch to another provider if this will deliver a cost advantage:
Just because you chose to take out a mortgage with one bank doesn’t mean that you are forced to stick with that bank until the end of your mortgage. Mortgage holders are entitled to switch providers and if you find an alternative mortgage that is much cheaper then this may help you to pay off the mortgage more quickly. However, there may be fees associated with moving from one provider to another, so it’s important to do your maths and makes sure that the benefits outweigh the costs.
Be financially disciplined and operate to a budget:
Being able to afford to pay off your mortgage within ten years will normally require a household to be disciplined in their spending behaviour. You need to make sure that you are earning more than you are spending and that the surplus money can then be ploughed into reducing your outstanding mortgage. Operating a strict budget is the best way to ensure that costs remain under control and that you remain on course to meet your mortgage objective.
Sell your property and move to a cheaper one:
Another way that mortgage holders often repay their mortgage is by selling their house and this often happens when they decide that they wish to move to another property. If you are upsizing, then the chances are that your new property may be more expensive than the old one, so you may end up with a bigger mortgage. However, there are instances where a mortgage holder can sell their house for more money than they need to buy a new property and that may provide the ability to pay off your mortgage in full.
In conclusion, there are quite a few things that a mortgage holder can do to reduce the amount of time that it takes to pay off their mortgage. The point at which you take out the mortgage is crucial as you need to ensure that you obtain a mortgage with a low interest rate and which provides you with the level of repayment flexibility that you want. During the duration of the mortgage, your focus needs to remain on paying off the mortgage quickly and this requires financial discipline and organisation. Paying off your mortgage in under ten years should save you a lot of money compared to the cost that you would have incurred if you stuck with a 20 or 25 year term. Of course, it won’t be possible for everyone to repay their mortgage in just ten years but any reduction that can be achieved will be beneficial.