Paying Your Mortgage Early

By: Gill Critchley

Paying off your mortgage early is probably the best investment you can make. However; with low inflation nowadays, debt usually stays as it is, so you can't rely on wage increase to reduce your debt.

With the mortgage tax relief being scrapped in 2000-2001, there is now no tax incentive to hold on to your mortgage debt. This all means that one of the only ways you're going to reduce your mortgage debt is by paying it off early.

To pay off your mortgage early you will need to overpay each month so that you knock years off your payment and end up saving money on the interest. Say, for example, you have a ?100,000 mortgage that you have to pay off over a 25-year period with an interest rate of 6%. By overpaying every month by ?100, you could save ?27,039.37 overall and shave 6 years off the life of mortgagessuch as these.

The problem with this is that some lenders have a set minimum amount that you are allowed to overpay. If you were to pay more than the minimum, your interest rates will be recalculated for the next month.

Some lenders offer offset mortgages. These mortgages recalculate your balance on a daily basis and take into account your savings. These savings are then taken off your mortgage total, say for example, you needed a ?100,000 mortgage and you had ?3000 savings, you would then borrow ?97,000 for your mortgage. The reason some people opt for these mortgagesis because they aim to get rid of your loan a lot faster.

Many high street lenders has started to give normal loans flexible features, however; some set minimum or maximum amounts that you can overpay.

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