Learn exactly what remortgaging is, how it works and the important things to consider.
You want to pay off your mortgage early. Who wouldn’t? To live the rest of your life without having to worry about mortgage repayments – it’s the dream every homeowner works towards.
So, how does someone become mortgage free? In this article, we’ll walk you through how to turn what some might consider a pipe dream, into reality, through some really simple, easy to follow, steps. Let’s get started.
It might sound nice to say you’re ‘mortgage free’, but what are the actual benefits of no longer having to pay off your mortgage?
Let’s start with the most obvious reason – you’ll have more money. Yep, you guessed it! No longer having to make monthly mortgage repayments will mean you have more disposable income at the end of the month. For some, this makes the prospect of retiring early a genuine possibility, while for others, it means having more money to support their children with. Whatever you use your money for – being mortgage free will mean you have more of it.
Following on from that, paying your mortgage off early will also mean that you’ll pay less interest overall too – this could save thousands, or even tens of thousands of pounds.
Finally, you’ll have the security of knowing you own your home outright. What could be better than that?
Okay, we’ve established why paying off your mortgage early is a good idea. So, what do you need to do now? We’ve put together a to-do list explaining everything you need to know:
The first step is easy – make sure you’re on the best mortgage deal possible. If you’re paying more than you need to for your mortgage each month, you’ll be wasting money that you could be using to become mortgage free! Here’s what to do:
Make sure you’re not on a Standard Variable Rate – If your mortgage deal has ended, you will have lapsed onto your lender’s Standard Variable Rate (SVR). This means you could be paying hundred of extra pounds per month compared to other deals on the market. Check your mortgage deal to make sure you haven't fallen onto an SVR!
Work out the loan-to-value (LTV) of the mortgage you’ll need – If you decide to remortgage you may find you have greater access to mortgage deals than when you took out your last mortgage. This is because if your house has increased in value since you took your last mortgage out, or you’ve been paying a repayment mortgage, or both – you will own a greater proportion of your home. This means the loan-to-value (LTV) ratio – the size of your mortgage amount, compared to the value of your home, will be lower. The lower your LTV, the more mortgage deals may be available to you, and you may get access to better rates too.
Browse the market for a new deal – You want to make sure you’re on the best deal possible for you. In order to do that, you'll need to look around and see if you can find any better deals.
Take a look at our ‘Find a mortgage’ search tool. All you have to do is pop in a few details, and we can show you all the different mortgages available to you.
You don’t have to worry about working all of this out yourself – we’re here to help. If you’d like some help finding a new mortgage deal, you’re in the right place. Our expert team of advisers are always on hand to find out customers their perfect mortgage. Get in touch with us here.
Please note: Depending on your circumstances you may need to pay fees for switching mortgages, such as an early repayment charge. But your adviser will talk you through your options and advise you on any potential savings.
If you’ve just moved home, or just remortgaged, you probably won’t need to look for a new mortgage deal. You could, however, consider making mortgage overpayments.
A mortgage overpayment is an additional payment you make over your regular monthly mortgage payments. Overpayments can be made as a one-off lump sum, or you can overpay a regular amount each month.
Making overpayments on your mortgage means you can save on the total amount of interest you pay. Which means you can potentially pay off your mortgage quicker too.
We’ll show you an example of what this might look like:
Let’s say you have a repayment mortgage with an outstanding balance of £150,000 with 25 years of the term left and an interest rate of 2.5%. If you overpay by £100 a month, you could pay it off 4 years and 3 months earlier. Which means you’d save £9,485 in interest*.
Alternatively, if someone with the same mortgage made a lump sum overpayment of £20,000, this would reduce the term by 4 years and 4 months. This would save £15,371 in interest*.
Please note*: This makes assumptions. This would assume that the example mortgage rate would remain the same for the entire length of the mortgage term. These rates can be subject to change over the course of a mortgage term. The example simply intends to illustrate the impact making overpayments can potentially have over the term of a mortgage.
Also, the way the lender calculates interest may vary – it could be daily, monthly, or annually, which can make a big difference.
You need to bear in mind, however, that most mortgages will carry an early repayment charge during the deal period. The majority of lenders will allow some overpayments before you incur a charge, usually up to 10%.
Always make sure to check with your lender how much you can overpay before making any overpayments. Your mortgage adviser will be able to assist you with this.
If you have savings and prefer not to overpay your mortgage with them, they could still help you on your journey to mortgage freedom. With offset mortgages, your savings and mortgage are linked. And you use the savings to ‘offset’, or, reduce, the amount of interest you’re charged on your mortgage.
Let’s provide another example:
You have an offset mortgage with an outstanding balance of £150,000 and £50,000 in your savings account. You’ll only pay interest on the difference which, in this example, would be £100,000. This means you’ll save on the amount of interest paid, and you can use this to help pay off your mortgage sooner.
Plus, you’ll have access to your savings whenever you need them. However, bear in mind you won’t earn interest on your savings, and interest rates on these mortgages can be higher.
You could give your income a serious boost if you have a room you can rent out. If you rent out a room in your home, you could take advantage of the UK Government’s Rent a Room scheme. This allows homeowners (who rent out rooms in their homes) to earn up to £7,500 per year before having to pay any tax on the income.
The limit of £7,500 is for individuals. If you share income from the property with another person, you can only claim up to £3,750 each.
To qualify to use the scheme, you must offer fully furnished accommodation in your main home. Remember to get permission from your mortgage provider before starting! You’ll also need permission from your home insurance provider too.
If you choose to do this and put all the money towards paying off your mortgage, it could make a huge difference!
When it comes to your finances, it’s important to have a plan. If your goal is to become mortgage free as quickly as possible, you may choose to cut out all luxuries like holidays and meals out and put every spare penny into paying off your mortgage. While someone else may want to keep their holidays but forgo getting a new car.
The key is to get the right balance for you. The best thing to do is to sit down and make a budget and plan what you’re going to spend your cash on.
When it comes to planning your journey to becoming mortgage free, our award-winning team of expert advisers are here for you, whenever you need them.
If you have any questions about becoming mortgage free, or just fancy a chat to discuss your options, our team are always happy to help. You can get in touch with us here.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.