Local expert explains paying off your mortgage

Alex Sharp of GAM Home Loan Specialists writes about the process of paying off your mortgage.

With mortgage interest rates at their current levels, we are getting more enquiries about overpaying on your mortgage.

With the view that reducing the size of your mortgage is a better option than putting money into a savings or investment account, I thought it would be worth answering a few frequently asked questions.

Firstly, every situation will be different, and GAM HLS is here to discuss your mortgage and plans for the future.

Secondly, we are specifically taking about the final years of your mortgage. We will discuss general overpayment of your mortgage further on another occasion.

So as an example, you have had a mortgage for 20 years, you now owe £35,000 and you have six years remaining on your mortgage. Your five-year fixed rate ends in November and you are considering your options.

GAM Home Loan Specialists is run by Gary (left) and Alex Sharp (image supplied)

How much should I overpay?

Firstly, You should make sure you have enough money for your total monthly expenditure.

You should also make sure you have enough money put aside for emergencies.

You may have savings goals or different plans for the future for example a family summers holiday.

But besides these points you need to find out if you have penalties for any overpayments. Most mortgages allow you to overpay by 10 per cent of what you owe per year.

A few lenders will allow 20 per cent overpayment per year and utilising these lenders is a good strategy for paying down your mortgage in those final years as the lower the loan amount the more restrictive the 10 per cent allowance is.

Should I overpay monthly or via lump sums?

The simple answer is whichever strategy suits your situation best.

For example, if you receive an annual bonus you may prefer to overpay with a lump sum. But in general, increasing your monthly direct debit is an easy way to overpay.

When my fixed rate ends and my mortgage is up for renewal can I overpay by more than the 10 per cent allowed?

The simple answer is yes. We may have to move you to a different bank depending on who your mortgage is currently with but at that point you can reduce the size of your mortgage. GAM HLS can guide you through this process.

GAM HLS is here to discuss your mortgage and plans for the future (image by SWNS)

Do you have any other tips for the best way to pay down my mortgage?

There are good tips for overpayment such as "Rounding Up", "Reducing your term" or "Utilising a payrise or bonus".

But we are specifically talking about the final years of your mortgage, so, there are mortgages with no early repayment charges at all.

This means that you can overpay as much as you like. This is useful for anyone looking to overpay by more than 20 per cent per year, if you are expecting a lump sum like inheritance, expecting a bonus or you have funds maturing.

What happens after my final payment?

You should receive paperwork to confirm your mortgage has been paid in full.
Your bank should remove the "charge" with the Land Registry, but it is worth double checking this happens.
After three months it is worth checking your credit file to make sure it reflects your new situation.
You need to make plans for the funds that were being paid into your mortgage. It is likely your current account does not provide a good return on your money, it is worth addressing this. We can help with ISAs, Savings, Pensions and Investments.