Most lenders charge an early repayment fee, so it’s essential to know what yours would be. You might work out that, despite the charge, clearing your mortgage is still the right option as you would save more money in interest costs. But if your mortgage is coming to an end soon, you may decide that the early exit fee is not worth it.
If you can afford to pay off your mortgage, consider first if there are any other places you could put the money – such as pensions or savings, where you could get more in interest than you would pay on your mortgage.
Alternatively, there may be other more expensive debts you could repay, such as credit cards or vehicle finance. Even though they might be smaller loans, the interest is often higher so it’s normally advisable to pay them off before your mortgage.
Paying off your mortgage in one lump sum is not the only way to clear the loan early. You might choose to remortgage to get better rates as you would likely have a smaller loan-to-value (LTV) than before. You could also make overpayments, if permitted – most lenders allow you to overpay up to 10% each year penalty-free. Or, you might consider switching to an offset mortgage, which uses the money in your savings account to reduce the total interest that you are charged.
With further cuts expected to Bank Rate, you need to choose the best time to pay off your mortgage. Overpaying when interest rates are low would mean you have less to pay in future if interest rates go up again. Also, if your mortgage interest is charged daily, it’s advisable to make an overpayment as soon as you can. But if it’s charged annually, you should make the overpayment at a time when it counts towards the calculation of interest for the year.
With many factors to consider, it’s essential to seek professional advice before attempting to pay off your mortgage. We will help you to make an informed decision by explain your options and their respective implications. Contact us for advice today.
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