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Shorter Mortgage Term vs Making Overpayments – The Smart Way to Reduce Costs

Posted on Thursday 8th December, 2016

Most of us would like to keep the term (length) of our mortgage as short as possible – no-one wants to think of paying a debt up until our old age. Financially it makes good sense to keep the mortgage term as short as possible – the sooner the mortgage is paid off the less interest payable.

However, there are several things to consider before formally committing to the limit of your budget for the sole purpose of keeping the term as short as possible.

The down side to putting everything you have into paying off your mortgage is that it can be difficult to access these funds once paid in and the exercise is often timely and costly as it may involve re-mortgaging.

There are other ways to shorten the term allowing more flexibility that you may wish to consider…

Most mortgage products have overpayment facilities that allow you to make regular overpayments that will in effect reduce the term of the mortgage. There can be several benefits to this kind of arrangement.

Providing the chosen mortgage product has a regular over-payment facility then you can make overpayments that will in effect reduce the term of the mortgage and the amount you will pay in interest but if you find yourself short of money you aren’t obliged to make the higher payment.

If the product has the added benefit of a draw-down, you may also be able to draw from these overpaid funds if you find yourself in need of a cash injection. An offset facility could be a good alternative as well with the same kind of benefits.

Making regular over-payments is key to ensuring that the term is reduced. If you are not good at managing your money, then perhaps this route is not the best for you.

Rather than committing all your savings to reduce the term of your mortgage, it is good financial practice to keep a ‘rainy day’ fund that you can draw from if the worst happens, without affecting your mortgage payments and ultimately risking your home.

So, in today’s unpredictable climate thinking outside the box can give you exactly the same effect as paying as much off your mortgage as possible without the risk of finding the barrel empty if the unexpected happens.

For more advice on mortgages or to speak to us give us a call on:

0800 970 1795

terry@acorn4mortgages.co.uk

 


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