Early mortgage repayment

haz900

We have a repayment mortgage that is currently set at 21 years to run and we intend to repay the full amount within 5 years or less. Is it better to rearrange the mortgage to pay more each month over the 5 years or to continue with the current monthly payment and save up enough to pay off the balance in 5 years.

GrumpyOldMan_2

You would first need to look closely at your Mortgage terms & conditions, particularly at the sections relating to overpayments and redemptions. Typically, most mortgages will allow 10% of the outstanding debt to be repaid without any penalty or redemption fees.

Also if the mortgage is a discounted/capped/fixed further restrictions may apply, particularly if you are still within the discounted/capped/fixed period.

It may be possible to either stay with your current mortgage and just make the overpayments (with the above caveats in mind) which would have the effect of reducing the mortgage term or move to a better rate with your current lender if you are not particularly happy with the current rate you are paying. (they may allow you to switch to another product without charge - but as always check the terms & conditions of any new product they offer to make sure it fits in with your needs).

As always, speak to your current lender to see what offer / advice they can come up with and then shop around to see what else is on offer - then if you come up with something better go back to them and see if they will match it. This may save you the costs of remortgaging with another lender.

Regarding the overpayment vs. stashing the cash in a bank question you would need to look at the rate you are being charged by your bank for the mortgage vs. the interest rate you would achieve on the savings account/vehicle. If the savings rate is is lower than the rate for the mortgage, then it would make sense to overpay the mortgage (subject to any restrictions). If on the other hand your savings rate is greater than the mortgage rate, then you would be better off saving the money, and then paying of chunks of the mortgage.

Hope that helps. I would also recommend you read some of the sections on this website regarding savings, debt and mortgages.

Good Luck!

haz900

Thank you, it was useful advice, we do not have any penalties linked with our mortgage lender, so will probably increase the monthly payments over the 5 years and pay the mortgage off early.

Simon_gloster

Hi

the post quite rightly states the 10% allowance of overpayemtns pa from most lenders (apart from Nationwide £500 p/m penalty free). Seek professional adivice regarding new mortgages available. If your mortgage is due for a renewal, there are very good tracker (Abbey) and fixed rates available that carry no early repayment charges.

As I dont know your circumstances I cannot comment, but if your going to repay in 5 years, get a consultant to look at the market for you for affordable penalty free rates.

Si

haz900

Thank you we will look into this.