Keep up your payments and pay your mortgage off early

Charcol advises borrowers to maintain their higher payments, to reduce their term. “Borrowers worked hard to live to a tighter budget last year, and now that bank rate has started falling, just keeping their mortgage payments up at the level they are now used to, they could reward themselves with an early finish to their mortgage.” says Katie Tucker, of Charcol.co.uk.

“For many people, the mortgage is what dictates when you can retire. By paying it off even a few years early it can make a difference to your quality of life not only because of age, but because of the money you free up to spend on other things.

“Borrowers on variable rates have seen their monthly mortgage payments increase five times in the last two years. Base increased from 4.5% to 5.75%, taking the typical monthly payment for a variable £100,000 repayment mortgage from £555 to £629. However, borrowers that have been able to afford these mortgage payments over the last year should consider keeping them at that level now, because whatever isn’t paying interest will pay off the capital instead, reducing your term. Many economists predict that interest rates will fall as low as 4.5% again by the end of 2008.”

For example, if you maintain the payments of £629 p/m that you paid on £100,000 of debt at 5.75%, but your rate has moved down to 5.25% now, £30 of it is extra, and chips away at the capital. If continued, this pays your mortgage off two years early.

Miss Tucker continues: “Making this little overpayment reduces your capital, and with property value rumoured to be falling in many places this year, repaying debt is the must-do for 2008 to minimise any risk of negative equity.”

“Most lenders allow you to overpay between £500 and 10% of the outstanding debt extra, without charge, each month; you simply write a cheque to yourself, or set up a standing order, and let them know you want it to goes towards reducing your capital debt. Your lender or a broker can easily tell you what facility you have.”