While this is unlikely to be easy, there are options available, with a range of mortgages available which may be faster to pay off than homeowners' existing deals. Those with no money to spend could see their repayments lowered by switching to an introductory offer or an offset package. The main options available to homeowners looking to eliminate their mortgages are covered here - although that which is best-suited will always depend on individual circumstances.
Move to a more competitive mortgage
First things first, check the details of your current mortgage - compare the interest rate and the type of mortgage you have with what is currently on the market. Know Your Money's competitive re-mortgage deals are available here. If you need to know more about the new types of mortgages available, such as the hybrid mortgage, then take a look at our 'Types of Mortgages' guide.
Make overpayments
To the savvy homeowner overpaying your mortgage allows you to capitalise on the current low interest rates. Overpaying, even just by a small amount, reduces the overall interest you will have to pay on your mortgage. Hey presto - this leads you to being able to pay your mortgage off far more swiftly than if you just made the basic repayment every month. The key is simply making your money work harder for you. Be careful - do check you won't get charged a penalty for making the overpayment. Most lenders allow you to overpay by 10% per annum but it's worth checking to be on the safe side.
Shorten the mortgage term
Shortening your mortgage term is another way of overpaying your mortgage and becoming mortgage-free earlier than expected. You would have to be sure that you could commit to the increased payments on a long-term basis and it would also be worth checking with your individual lender whether you have the flexibility to extend the length back again if you get in to trouble later on.
Offset your savings
An offset mortgage uses your savings to reduce the amount of interest you owe, but does not require them to be spent in the form of a deposit. The main advantages of such a package are twofold, according to the Council of Mortgage Lenders (CML). Firstly, by reducing the balance of the mortgage on which interest is due by an amount equal to that held in savings, the overall interest paid is reduced accordingly, the CML states. Meanwhile, the savings themselves do not incur income tax, but may still earn interest at a rate similar to that of the mortgage. While Britons with no positive savings balance could be unlikely to benefit from such a package, those whose mortgage is their only debt may be able to reduce the amount owed using their savings.
Add value to your home
Adding value to your home could be one way of remortgaging at a lower LTV (loan to value). This may allow a borrower to avoid incurring higher lending fees - which the CML warns could be added to mortgages with an LTV of more than 80 to 90 per cent. Property service SmartNewHomes suggests that adding a conservatory could increase the value of a home dramatically. Head of marketing Steve Lees advises: "By definition it will because it's extra space - it's an extra room potentially. "People will be doing that, in terms of extensions or conservatories, to have extra space rather than move to a bigger home." By adding value to a property, residents could find their mortgage represents a smaller percentage of the total price when remortgaging.
Penny pinch
Find the extra cash you need to overpay your mortgage by giving your finances a good hard squeeze. It's amazing how much extra cash you can make. Here's our ideas how....
- Credit card: get hold of your last statement to see what interest rate you're paying and exactly how much that equates to in hard cash. Switching to a credit card that pays a lower rate of interest will be an instant money-saver. If you're already on a competitive rate then take a look at the 'rewards' - some have equally competitive rates but offer you further incentives such as air-miles which can be used against the annual family holiday. Use our comparison tables table to see the current offerings.
- Review your current account: what are you paying for your overdraft borrowing? Are you paying a management fee for the account? Could you move to an account with a higher rate of interest? It's all about cutting out the unnecessary costs that you often unwittingly pay. Our comparison tables show the best we have available at the moment.
- If you presently have a savings account: what interest rate are you getting on your money? Not only do you want to be cutting out the unnecessary costs you are paying out for credit card interest, current account management fees etc - you also want to be maximising the interest you are receiving on the cash you are depositing. Our saving accounts comparison tables can be used to judge whether what you're receiving at the moment is competitive or not.
- Take a good look at all of your insurances: Whilst it may seem quite time-consuming, the extra cash you could generate by looking around the market for the most competitive product could be significant, particularly if you've fallen in to the trap of using the same insurance provider for a number of years. Use our tables to give you a comparative view of the market's competitive products for: car insurance, breakdown cover, home insurance, life insurance, pet insurance and travel insurance.
Put yourself in a good position for next time
The secretto this all is lowering your 'loan to value' (which we hinted at above). The greater the difference between the value of the mortgage you have (the loan) and the value of your property - the more chance you have of being offered the most competitive deals when your current mortgage ends - so which ever way you decide to go... getting more equity in the property can only be seen as a good thing.
Which is the best option?
The best option for an individual generally depends on their circumstances - those with no savings would be unlikely to benefit from an offset mortgage, or to be able to afford to build an extension. While the CML suggests that lenders may allow a client to remortgage in order to obtain the funds for an extension, this could be a step further away from becoming debt-free.
For individuals with little money to spend, a straightforward remortgage may be the best option - although this will rarely be cost-free. One-off fees such as application and arrangement charges are likely to feature in any new mortgage request, while a valuation may be required if the market value of the property has changed since the previous mortgage was obtained, the CML advises.
Meanwhile, homeowners whose current introductory offer has not expired could find they are subject to exit fees if they wish to escape the contract and move to another lender. Contacting the current lender may be an effective way of determining whether they provide an alternative product which could be of greater financial benefit, as well as discovering whether they offer any other advice towards eliminating mortgage debt.
To compare the latest mortgage rates from leading UK lenders click here.
Author: KYM Editor
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