Paying off a mortgage is a huge accomplishment. As one of the largest debts that you will most likely ever undertake, getting shot of it should be at the top of your list.
If you’ve just bought a house and opted to get a mortgage, you might be wondering how best to pay it off. Should you pay more back or overpay your mortgage each month to pay it off more quickly? Or should you pay it off in smaller chunks like most homeowners? The answer isn’t always that clear.
In this article, we’ll explain what your options are when it comes to paying off your mortgage and look at the pros and cons of each.
How to pay off your mortgage early
Whether you’ve recently come into a bit of money or your home was a little under your intended budget, you might have some extra money to help pay back your mortgage. With this, you could simply put down a lump sum to make one large mortgage repayment, or you could spread that amount across what you currently pay each month. Regardless of which method you choose to add to your mortgage repayments, the extra payment injection could end up shaving years off your overall mortgage repayment term.
However, one thing that you absolutely must check before you decide to do this is the terms of your mortgage deal. That is, you need to find out whether, given the terms of your deal, you will be hit with a penalty for paying off your mortgage quicker early. For example, some providers may only let you overpay your mortgage by 10% per year without issuing a penalty.
How much can you save by paying off your mortgage early?
In some cases, simply paying an extra £100 a month into your mortgage could see you shaving around five years off your mortgage repayment term. Moreover, depending on your rate of interest, this could save up to £25,000 in interest alone. As you can see, if you have the cash and the approval of your bank, there are certainly excellent savings to be made by paying your mortgage off early.
Is it worth paying off your mortgage early?
Well, ultimately, the answer to this question depends on whether you have your other debts under control. When it comes to thing such as credit cards and personal loans, you could in fact be paying greater interest with these debts than you would with your mortgage. In such cases, your mortgage repayment, despite being the largest, may not be your most pressing debt. As such, it may make more sense to pay off the debts with higher interest rates first.
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