According to the latest research, 57-and-a-half is the age the average homeowner becomes mortgage free. The same research claims 16% of adults believe they’ll ‘definitely be over 65’ by the time they repay their mortgage. And a further 9% ‘have no idea’ when they will clear their debt.
‘We’ve become a nation of savers’
Mortgage Adviser, Jo Jingree, thinks so. Jo says: “The ongoing lockdowns in the UK have seen many of us swap our expensive commutes for short walks to the sofa. We’ve unwillingly said goodbye to our takeaway coffees and replaced them with homemade cuppas. We’ve ditched our work lunches for working-from-home lunches and, ultimately, we’ve become a nation of savers.
“But if it’s a toss-up between saving that little bit extra each month and overpaying your mortgage, I’d suggest the latter. Many of the major bank’s interest rates are very low right now, so putting money into savings accounts won’t get you much bang for your buck. Whereas paying off your mortgage quicker can bring many benefits.
“However, just remember, every homeowner is in a different position and it’s wise to have a rainy-day fund as a safety net. If the past year has shown us anything, it’s that anything can happen.”
Giving some serious thought to overpaying your mortgage? Here’s a few factors to take into consideration…
Overpaying can…help you be mortgage-free at an earlier age
Getting on the housing ladder is an impressive achievement. But being mortgage-free is an ever-bigger milestone. As it stands, the average period of repayment of a UK mortgage is 25 years.
Jo says: “Of course, having your mortgage over a longer term brings the monthly repayments down. But if you are in the position to overpay your current monthly mortgage bill each month or as a lump sum, it could leave you mortgage free quicker than you expected to be.
“In the long run, this could mean you can retire earlier or cut down your working hours and go part time. It can also give you more financial freedom to do the things you’ve always dreamed of.”
Jo says: “Just note, if you want to reduce the term, rather than the repayments, highlight this to your lender.”
Overpaying can…mean you pay less interest
Interest – the word we all dread when it comes to mortgages. “Like with many loans, the longer you take to repay the money, the more interest you will incur,” Jo says. “And the same goes for mortgages.”
According to the facts, the average interest rates for repayment mortgages are around 2-3%. But if you are overpaying your agreed monthly mortgage repayments, the less interest you will pay in the long run because you are clearing the debt quicker.
Overpaying can…technically be done by remortgaging
To help you reduce your mortgage term, some people consider remortgaging. Remortgaing is the term given to homeowners who have a mortgage on a property and swap to another mortgage deal with a different lender. You can change your overall term, find a better interest rate and adjust the amount you pay each month.
You won’t necessarily incur a repayment charge
“This is a common misconception when it comes to overpaying your mortgage” Jo says. “In many cases, many lenders let you pay up to 10% extra each year without incurring a repayment penalty. This might not sound like a lot, but if you have a £200,000 mortgage that would be the equivalent of overpaying £20,000.”
However, before you make any overpayments, be sure to double check your mortgage terms and conditions and consult your lenders before doing so.
Wondering where to start?
The first step to take when it comes to overpaying your mortgage is to get in touch with your current lender. They will be able to talk you through your options.
But for a broader conversation about overpaying and/or remortgaging then why not drop Jo a message?
She has more than 20 years’ experience working in the world of mortgages. Jo has helped numerous clients find the best mortgage for them and their current financial circumstances. Get in touch today for a 30-minute free consultation.