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Becoming mortgage free

It doesn’t need to sound like a pipedream, but with careful planning it’s possible to pay off your mortgage much earlier than planned.

In the current climate of low interest rates, it can make sense to use any surplus money you may have to pay off borrowings, including your mortgage - most people’s biggest liability is their mortgage - but don’t forget credit cards and loans.

If the interest rate on your borrowings is higher than the rate of interest you can obtain on your savings, it may be prudent to repay your debt first rather than accumulating extra savings, as in the long run it will mean you’ll save money.

Before doing so it’s worthwhile checking the terms and conditions, as not all lenders and deals will allow you to over pay or repay early. It’s counter-productive if you’re then charged more for doing so.

Monthly overpayments

A simple way to chip away at any balance is to overpay each month. This has the benefit of not only saving interest, but makes budgeting easier as well as paying the debt off quicker.  

Alternatively, if you aren’t able to over pay, you could set up a regular savings account to pay into which you can then use to repay a lump sum when you’re outside of any repayment charges.

It’s always worthwhile ensuring that you’re not over-stretching yourself, so it’s wise to do a full check of your expenditure first. Both repayments and overpayments still need to be affordable.

Review your deal

When did you last review your mortgage arrangement? Have you been sat on a variable rate mortgage for more than 12 months? Over recent times some very competitive mortgage deals have been available, as we’ve covered previously. The less interest you pay on your balance, the lower your monthly repayments tend to be, so remortgaging can be a win-win.

Lump sum overpayments

Much in the same way that a monthly overpayment reduces the interest and loan term, the same can be said for lump sums. If you’re fortunate to receive a large bonus or even an inheritance this could be used to pay off a chunk of your mortgage. Remember to check your terms about over-payments first though.

Unsecured debts

Many people have credit cards and store cards which generally charge much higher rates of interest on outstanding balances than virtually all mortgages, so it’s worthwhile checking the rates of interest attached to any balance that you don’t repay in full. 

Financially, it’s prudent to use any surplus money you do have to paying off these debts first, as you’ll almost always pay much more in interest even though your mortgage loan amount is likely to be higher.

Whilst these suggestions require surplus money, it’s only ever surplus if it’s not needed. We would always suggest that you have sufficient money available which you can access quickly if you need to. Generally, we’d say between three and six months worth of income should be available in an emergency.

If you require advice on reviewing your finances, savings or mortgages please contact one of our independent financial advisers. Our Financial Planning Consultants are located across our office locations in Cumbria, Northumberland, Yorkshire and Scotland. You can contact us on 0808 144 5575 or help us at help@armstrongwatson.co.uk.

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