Many people who own their own homes in the UK want to pay off their mortgage early. Getting out of the biggest debt most people have as soon as possible gives them financial security and peace of mind for the rest of their lives. It's not impossible to pay off the mortgage early, though. In 2003, the average age of people who owned their own home outright was 56. By 2004, that number had dropped dramatically to 48.
How people can pay their mortgages off early
To pay off your mortgage early, you need to choose the right type of home loan. Flexible mortgage loans and offset mortgage loans can help you do this.
As the name suggests, flexible mortgage loans have flexible ways to pay back the loan. For example, the homeowner can pay off the loan early without being charged a fee. Some flexible mortgage loans allow the home owner to overpay up to a certain amount, like 10% of the mortgage value. Other flexible home mortgage loans allow the home owner to overpay as much as they want.
The good thing about flexible home mortgage loans is that you can overpay or underpay, giving yourself a "payment holiday" if money gets a little tight. Underpayment depends on the terms of the mortgage, and it is usually only allowed if it is less than the amount that has been overpaid.
With flexible home mortgage loans, if you pay more than the minimum each month, you can reduce the amount you owe on your mortgage and pay off the interest that has built up on the amount you owe each month. Each month that you make an extra payment, the amount of interest you have to pay on the whole mortgage goes down. With an interest rate of 6% on a GBP80,000 mortgage and a GBP65 overpayment, the loan will be paid off 5 years early, saving a total of about GBP15,000.
Offset home mortgage loans
Offset home mortgage loans were first made available to homeowners in 1998, and since then, they have gained a lot of respect from homeowners. With a "sweeper" system, offset mortgage loans can help you pay off your mortgage early. As long as the home owner has a checking and/or savings account with the mortgage loans provider, their available balance is "swept" to their mortgage account every day to reduce the amount of mortgage capital that is subject to interest.
To show how offset mortgage loans can be helpful, let's say you have a GBP100,000 mortgage and GBP10,000 in your checking or savings account. Instead of the interest rate being applied to the GBP100,000 every day or every month, it would be applied to your mortgage balance minus the amount in your checking or savings account. This means that interest would only be charged on GBP90,000. This means that 10% of your mortgage would be interest-free.
