Getting a mortgage can seem like a challenge for some – from saving for a deposit to getting accepted by a lender. However, once a homeowner has a mortgage, it may be that they make it their mission to repay the loan in a period of time which is shorter than the original mortgage term.
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For those looking to become mortgage free at an earlier stage than they would otherwise, a mortgage expert has shared some top tips – as well as warning borrowers of some things to remember.
Rosita Janulion, mortgage expert at online mortgage company at Habito, said: “If you can afford to pay down part of your mortgage, you should.
“When you get a mortgage, you agree a minimum amount to pay back your lender each month.”
The mortgage expert went on to explain that some people may opt to deliberately overpay on their mortgage – be that each month or as a one-off lump sum.
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“Actively overpaying just means paying more than that, either regularly every month or as a lump sum,” she said.
Ms Janulion explained that there is usually a limit to this for those borrowers who are in a fixed period.
“Most lenders let you overpay a maximum of 10 percent of your remaining mortgage balance every year if you’re in your fixed period,” the mortgage expert explained.
“If you’re out of your fixed period, you can often pay as much as you want.
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“Overpaying can wipe years off your mortgage and saves you paying the interest you would have accrued by having the debt for longer.”
Ms Janulion went on to offer an example of how a homeowner with a £200,000 mortgage over a 25 year term may be able to reduce their mortgage term through overpayments.
“For example, on a typical £200,000 mortgage with a 25-year term, paying 1.89 percent interest, if you overpaid every month by £100, you’d save over £7,000 in interest alone and become mortgage-free 3 years & 3 months earlier,” she said.
The mortgage expert also offered some words of warning to borrowers.
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“The key thing to remember is to make sure you tell your lender that the reason you’re overpaying is to reduce your mortgage term,” she said.
“The other big watch-out is for any early-repayment-charges [ERCs] – this is a penalty fee applied if you go over the maximum repayment amount in the year, so check your terms and conditions for your specific lender’s rules on this.”
Earlier this week, Martin Lewis and Angellica Bell presented a mortgages special of The Martin Lewis Money Show.
During the episode, the presenter told viewers that the borrower, Karen, had said: “By getting a lower rate and keeping payments the same, we knocked nine years off and saved around £54,000 over the mortgage term.”
Visibly impressed by the financial saving, Mr Lewis whistled, and added: “Well that’s of course because she’s effectively overpaying – which is another powerful way to save on your mortgage.”
The Money Saving Expert founder continued: “The first thing I’d do is check your existing rate. Then go onto a comparison site and see what the cheapest possible deal is.
“If that looks like you can save, do everything I talked about earlier, including possibly going to a mortgage broker.”