Mortgage loans are usually for a longer-term when compared to auto loans or durable consumer loans. The interest rates might be low on these mortgage loans, but the tenor is higher as the loan amount is higher.
Thus, it is a classical debate in the world of Finance that whether it makes sense to repay the mortgage loans as early as possible by making lumpsum payments at regular intervals or taking its course?
Let’s try to find a perspective or an objective analysis to reach the ultimate answer.
There are direct lenders present online offering CCJ loans with no guarantor borrowers in the UK. These are usually unsecured loans for which the lender does not ask for an asset to be pledged as collateral against the loan.
A borrower with a low credit score with a ‘country court judgement (ccj)’ on your credit report, and then also he is eligible to get these loans that too without producing any guarantor.
The repayment terms on these loans are quite flexible, and you can sit with the lender to negotiate specific terms and conditions.
Advantages of Paying off Mortgage Loans
Let’s get to know more about the advantages of paying off mortgage loans early and how you can do it. Here it goes:
To get the answer of whether to repay the mortgage as soon as possible, there is an opportunity cost that is investing that additional money. You can let the mortgage loan continue at its own pace, and invest the extra money in income-generating assets based on your risk appetite. You can choose term deposits in banks, do equity investing, buy physical assets like gold or real estate, or invest in Bitcoin.
This will multiply your investment over the investment horizon, and the returns can be further re-invested in other asset classes. You can achieve many life goals by following this philosophy and let your mortgage loan run at its own pace, don’t rush through it. You could also invest that money in picking up new skills by pursuing any vocational course or post-graduation to get even a better job with higher pay.
You can also use the additional money to settle other credit card bills or any other debt you have incurred. Thus the bottom line is, focus on other investment avenues rather than fast-forwarding the process of repaying your mortgage loan.
How You Can Repay the Mortgage Loan
Now, let’s look at some of the innovative ways on how a borrower can repay his mortgage loans early if he wants to get rid of liability as soon as possible instead of dragging it for years and paying more interest component. Here it goes:
It is an innovative and presently trending method in the UK wherein a borrower looks for a refinancing option by taking an additional loan offering flexible terms and conditions. Remortgage is known to offer comparatively low-interest rates and better repayment options.
You need to consult with mortgage brokers and relationship managers to get these lucrative terms and conditions. Some of the terms and conditions could be no penalty for late payment, no processing charges, lower base rates, flexible repayment tenor, no collateral or guarantor needed.
If you opt for a remortgage or any refinancing option to look for better deals, then monthly instalments tend to be higher. This extra payment may seem to be higher, initially putting a slight strain on your financial planning. However, you will soon get used to it by adjusting to this new norm.
You are winning on both fronts, first by getting a lucrative refinancing deal and second by overpayment. Thus you will end up saving a lot of years which would otherwise go in repayment.
This way, you will not be able to make any other investments till the loan is repaid, but once you repay it quickly, you can easily plan for your future. The overpayment amount may vary from one borrower to others, but it should ideally be 5-10% every month.
Also, overpayment mortgage calculators are available online, which you can use to compute the impact of overpayment and to what extent you can do it.
- Renegotiate Expenses
There are certain expenses incurred regularly, no matter what, it could be your fuel bills, broadband connection, rent, insurance premium etc. Certain miscellaneous expenses do not create any actual value and must be abrogated.
A borrower can save a lot of money by cutting back on unavoidable expenses, and these savings can be used to pay off your mortgage loans. It will help to repay your loan faster, and soon you will be relieved from all the liabilities.
Just adopt a cheaper internet plan, stop buying clothes and accessories you don’t need, sell the vehicle or equipment you don’t use, dispose your credit cards and use that money for something more productive.
- Use Bonuses
Your employer usually pays an annual bonus or festival rewards to you which can be used judiciously to pay a lump sum amount towards your mortgage loan. You need to avoid or defer one or two vacations or a party you were planning to throw and use that money saved to lower your debt repayment liabilities.
If not the entire bonus amount, you can pledge to take a percentage of the bonus amount and use it to repay your loan faster. The remaining amount can be used for a relatively inexpensive family holiday or throwing a party with cheaper alcohol.