It’s perhaps one of life’s ironies that most of us are keen to get on the housing ladder and yet, almost as soon as we get there, we are just as keen to get rid ourselves of the debt burden we were so keen to take on to buy our dream home.

According to the Government’s most recent English Housing Survey, 64% of property is owned by its occupants and 30% is mortgaged. In March 2016, the average house price (according to Zoopla) was 291,000. That’s a lot of people with a lot of debt!

Of course, as you start paying down your mortgage your debt reduces. But perhaps not as quickly as you might have imagined. For example, if you bought a home for £300,000 with a 25 year mortgage of £210,000 over 25 years, then your mortgage payments (assuming 4.25% interest) would be circa £1,137.65 pcm. Over the first five years, you would have paid £68,259 in loan repayments. However, you would still have an outstanding loan of £183,718. In fact, of the £68,259 repaid, only £26,282 would have been repayment of capital, the rest would have been interest on the loan balance. With the costs of moving home now quite high, you will probably have repaid enough capital on your debt to cover the costs of stamp duty payable on your new home! Scary stuff.

But don’t worry, there are ways to make the maths look a lot better. And here’s how.

First of all, shop around for the best possible deal on your new loan. This might mean more than just the headline interest rate. You need to consider early repayment charges, arrangement fees, etc. The cheaper the loan the more quickly you will pay off your outstanding debt. Increasing your deposit beyond certain thresholds of Loan to Value can help reduce the cost of your mortgage.

Second, try to reduce the period over which you are borrowing. Reducing your repayment term to 15 years from 25 will make result in a huge saving in interest. In the example above, the interest payable over 25 years was £131,295 whereas borrowing over 15 years would have saved you £46,934 in interest! Of course, your monthly repayments would be more than£400 pcm larger but you are, of course, repaying the debt faster. Most of use simply can’t afford to do this, but reducing the mortgage term by even 2 or 3 years can save you a considerable sum of money.

Third, if you come into some money or your wages rise, consider overpaying your mortgage or paying in a lump sum to reduce your outstanding debt. With savings accounts not even keeping pace with inflation, reducing debt is a great idea for most. Of course, it’s always a good idea to have a ‘savings cushion’ for that rainy day, so consider how much cash you need to save before paying off long term debt such as a mortgage.

Finally, if you have been on a particular mortgage for a while and your circumstances have changed or the property is now worth more as a result of house price rises, you should consider changing your mortgage deal. Many people are paying far more than they need to on historic deals that were perhaps, once right for them. Some remain on extremely competitive deals. The key, as ever is to take professional advice before you act.

For more information speak to a mortgage adviser on 01628 507477 or contact us .

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