What the banks and building societies DON’T WANT Mortgage holders to know.
Save thousands of pounds on your mortgage by clearing it early.
For many UK expats a residential mortgage or buy to let mortgage is probably the largest financial transaction you’ll ever make especially if you’re living and work away from where your UK Expat mortgage is. It’s also probably fair to say that the majority of people will allow the mortgage to run its course and take the maximum amount of time to pay off the debt. Is this the right thing to do or should you look at a little closer at the advantages of repaying your mortgage early?
For many the prospect of paying off the mortgage early can seem a little distant or maybe even a fantasy. However with a little careful planning, a change in mindset and being aware of the a few things banks and building societies don’t want you to know about and you could be mortgage free sooner rather than later.
So how serious are you about getting your UK Mortgage millstone from around your neck and is it really possible to be mortgage-free before the end of your original mortgage term?
Stuart Marshall –Founder and Managing Director at Liquid Expat Mortgages offers some insight into how you can take the first steps towards not only saving yourself thousands of pounds in interest payments but also giving you the freedom of being mortgage free before you ever thought possible.
“Over the last 11 years Liquid Expat Mortgages has arranged thousands of UK expat mortgages for customers all over the world and many are amazed that they can pay off their mortgages early. Of course some who are aware that you can overpay into your mortgage and so reduce your overall payments. Think of the extra cash you’ll have every month in disposable income and then think of the things you can do with that freed up money? I’ve noticed that expat mortgage borrowers are becoming more discerning and are looking for ways to make their mortgages work for them rather than paying tributes to banks and building societies; which makes sense as many chose to live and work abroad in order to achieve financial freedom.”
Here’s some of the ways that some Liquid Expat Mortgages’ customers have been able to pay off their mortgages early.
Overpay each month
Most mortgages allow you to ‘overpay’ by a certain amount each year, without charge. It’s typically 10% of your mortgage balance. If you pay more than that, then you may have to pay an Early Repayment Charge so always check your current mortgage although these charges tend to apply to fixed rate periods; once you are out of the fixed rate you should be able to overpay without penalties.
By over paying even as little as £50.00 a month off your outstanding mortgage balance each month you can make a considerable difference to your mortgage.
Make bi-weekly or Weekly payments
Most people pay their mortgage once per month so 12 full mortgage payments are made per year.
“But what if you make biweekly payments and submit a payment twice each month? For example, instead of making a monthly mortgage payment of £850.00 make two payments of £425.00 every two weeks. Stuart Marshall goes on to explain “As there aren’t a uniform number of days in each month you’ll make 26 “half-payments” or 13 “full” payments per year instead of the normal 12 payments. Because of the quirk of the calendar you make one extra full payment per year, and you won’t even feel it because it isn’t an increase as such but just a different way of making your repayments.”
This extra payment might not seem like much, but over the course of the loan, but it reality it has quite an impact. Let’s look at an example. Say you just bought a house and have a £200,000 mortgage with a 25-year loan term, and your interest rate is 4.125% APR. Here’s what will happen if you stick to the regular monthly mortgage plan, versus opting for biweekly mortgage payments:
|Monthly Payment||Biweekly Payment|
|Number of payments per year||12||26|
|Total Paid per Year||£12,834.36||£13,903.72|
|Number of Years||25||21|
|Total Interest Paid||£120,857.90||£108,882.00|
In this example, making biweekly payments allows you to pay off your mortgage four years early, and saves you £11,975.00 in interest payments.
Use an “Offset Mortgage”
Liquid Expat Mortgages has recently developed an Offset Mortgage product whereby savings are offset against the debt (mortgage) with interest charged only on the difference with the benefit of paying off your mortgage earlier as less interest is paid. You’ll still have access to your savings whenever you need them. The more you add to your savings pot, the further you will reduce the mortgage debt that you have to pay interest on.
With savings rates at a much lower level than current mortgage rates there is a really good case for looking at an offset mortgage and using your savings pot to save on interest – and the quicker you pay off the loan. To give you an example, if you had £10,000 in savings, and offset it against a £150,000 25-year mortgage at 3% it would save £10,426 in interest and see the mortgage repaid 1 year 1 month early. Offsetting £20,000 against the same mortgage would save £19,486 in interest and see the mortgage repaid 2 years 2 months early.
Switch to a cheaper deal
According to Moneyfacts.co.uk. Monthly repayments on £150,000 at 4.71% on a 25 year mortgage come to £851.73. The general consensus amongst lenders is that the average SVR is currently 4.71%. So by switching to a 5 year fixed rate mortgage at 1.79%, the monthly payment would be slashed to £620.56. It’s not rocket science is it? The less interest you pay, the quicker you could pay off the actual loan. So if you’re one of the 4 million people on their lender’s standard variable rate (SVR), you could definitely save money by remortgaging.
If you have enough equity in your home now could be a very good time to switch as there are many good mortgage deals on the market for those who don’t want to borrow a high loan-to-value. Even if your current mortgage rate isn’t due to expire for a few months, a mortgage offer can be valid for up to six months so it’s a good idea to bag a cheap rate before interest rates start climbing again in the new year.
This is a series of articles on how to save money and knock years of your payments. Please come back regularly to our NEWS SECTION for further updates.