Repay your mortgage early & SAVE
There is a big difference between a mortgage that is affordable and a mortgage that is cheap. It is a great idea to keep your mortgage as affordable as possible by remortgaging frequently. However, unless you are shortening the mortgage term each time you remortgage, you could actually be making your mortgage more expensive in the long run. This is because the longer you take to repay the loan, the more interest you will repay overall. This is a short guide to show you how to keep your mortgage both cheap and affordable by repaying as little interest as possible.
Remortgage for a lower interest rate
Switch to a lower interest rate in order to reduce your monthly repayments, even if you are not struggling with your payments. Why pay a higher interest rate than you need to? Time your remortgage so that you don’t have to pay unnecessary early repayment charges, and make sure you choose a new mortgage that is flexible enough for you to make regular overpayments without penalty. Also ensure that your new mortgage has its interest calculated daily as opposed to monthly or annually, so that your interest charges are calculated correctly.
Maintain your earlier payments
Although it might be nice to have less of your income dedicated to repaying your mortgage each month, the trick to repaying your mortgage more quickly – and reducing the interest you repay - is to now keep up your previous monthly repayments. You will be overpaying every month, and this will reduce your outstanding amount more quickly, which in turn means you will repay a lot less interest overall.
Offset and save
One of the best features available on many flexible and offset mortgages is that you can link your bank account to your mortgage. Some lenders allow you to link up to 4 or 5 accounts, so link up all the accounts you are able to. Any money held in these accounts will effectively reduce your outstanding mortgage balance, and you will be paying interest on a smaller amount than you actually owe. So, if you have £5000 in a savings account, your outstanding mortgage balance will be reduced by £5000 for as long as that money is held there. This will greatly reduce the interest you repay overall, and make your mortgage much cheaper in the long run.
Keep it flexible
Of course, you could simply remortgage for a better interest rate and opt for a shorter loan term with higher monthly repayments. You will see the same result in the end, as you will repay less interest overall. However, the problem here is that you will be committing yourself to higher repayments each month. And if interest rates rise or your circumstances change you might find yourself unable to meet your high repayments. By using the process outlined in this guide you will keep your mortgage flexible, which will keep your options open. Once a reservoir of overpayments has built up, you can take payment breaks or underpay if you need to in the future, helping you stay in control of your finances.
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