We often hear that we should try to repay our debts early, but we may wonder whether this will also apply to our mortgage. Paying off early does have advantages but it may not always be the best idea. It is worth exploring the idea further before going ahead with making any extra payments.
Check the Cost
IT is good to start by checking how much you are actually paying for the mortgage. This is the cost of the interest and any other fees you have to pay. Also, the cost of anything else you have to pay because you have a mortgage that you may not have if you didn’t have one – such as life insurance and buildings insurance. If you feel you would keep these even without a mortgage then do not include them, but if you will cancel the policies once the mortgage is paid off then they are a fee associated with having a mortgage. It might be that you would keep the buildings insurance but not any life insurance and so you will save the cost of that life insurance.
Check for an Early Redemption Fee
It is worth checking to see whether there is a cost of repaying the mortgage early. This tends to be called an early redemption fee. If you are not sure where to find out then contact the lender directly and ask them. This fee can be quite small, but in some cases it will be really expensive and so it is well worth investigating it carefully. If you are in a fixed rate deal, then it could be more likely that you will have a fee to pay, but you will need to check to be sure. The fee could be just a small administration fee, but there is a chance that it will be a large amount of money which will make it more expensive to repay early than to keep the mortgage and it is therefore well worth checking this out.
Consider Whether you can Afford it
It is also worth making sure that you are able to afford to repay the mortgage early. You will need to be repaying more each month than you are now and you need to think about whether this is something that you will struggle to do. It is wise to check out your bank statements and see how you are managing each month first. This will enable you to see whether you normally have money left at the end of the month that you can use for this purpose or whether you will need to find some extra money elsewhere. You may need to think about ways that you can cut down your spending or try to earn more so that you are able to get the money you need. You need to also consider whether this will be fairly easy for you or whether you might find it stressful and if so, whether you should do it or not. You may find that you will be able to afford more at certain times than others. If this is the case then you might be able to repay limp sums of money at certain times and therefore this could be helpful. You will need a flexible mortgage to be able to do this though, or a savings account that offsets against the mortgage. Find out more about your mortgage and whether you are able to do this or consider moving your mortgage. This could make it easier to repay, if you find a cheaper mortgage as you will have less interest to pay so more money left over to put towards repaying what you owe.