Mortgage free: Borrowers warned to watch out for this in order to cut costs and save money

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MORTGAGE payments are a significant monthly outgoing for many people, however there are ways in which some homeowners may be able to cut costs on mortgages.

Paying off a mortgage will be an aim for many, but with the average mortgage term spanning 25 years, it can take quite some time. There are ways in which a person can slash years off their mortgage, however.

There are a whole host of ways which homeowners and mortgage experts have highlighted.

The topic is something which Cassie Stephenson, from the free online mortgage broker Habito, has spoken to Express.co.uk about.

Addressing the aim of becoming mortgage free, Ms Stephenson explained that some may opt to make overpayments.

“Agreeing with your lender to deliberately pay more towards your mortgage, to clear your mortgage faster, can be very good for your bank balance,” she said.

“Overpaying in this way can knock several years off your mortgage, save you thousands of pounds in interest, and help you become mortgage-free faster.”

Of course, there will be limitations as to how much a homeowner can afford to repay, and there’s often only so much that borrowers are able to repay at once.

Ms Stephenson explained: “Most lenders let you overpay by 10 percent of the mortgage every year.

“You can see if yours does this by checking your mortgage documents.

“You can overpay either as one lump sum or by increasing your payments a little each month.

“Doing it as one lump sum might be preferable at a time like this, because it gives you more flexibility in case you need those cash savings later on, for something urgent.”

There may be a way to easily work out whether upping mortgage payments and “overpaying” would save substantial amounts.

“A mortgage overpayment calculator can show you the impact that even small overpayments can make,” Ms Stephenson said.

“For example, on a typical £200,000 mortgage with a 25-year term, paying 2.2 percent interest, if you overpaid every month by £100, you’d save over £8,500 in interest alone and become mortgage free three years and three months earlier.”

However, there are some important aspects of mortgage overpayments which borrowers need to be aware of.

“With most bank savings product rates being very low, becoming mortgage free faster could give your savings a better return on investment,” Ms Stephenson said.

“But make sure you speak with your lender to do this and tell them explicitly that the reason you’d like to overpay is to reduce your mortgage term.

“Otherwise, they might keep your term the same, and use your lump sum overpayment to reduce your monthly payments.

“The other big watch-out is for any early-repayment-charges or ERCs – this is a penalty fee applied if you go over the maximum repayment amount in the year, so check your terms and conditions for your specific lender’s rules on this.

“And like always, make sure you’ve got the best existing mortgage deal, on the lowest interest rate possible, before you start overpaying.

“That way any extra money you overpay will go towards reducing your mortgage, not just lining the banks’ coffers.”

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