Mortgage rates: How homeowners have managed to shave five years off their mortgage term | Personal Finance | Finance
According to The Money Advice Service, the average mortgage term is 25 years. Reducing a mortgage term will be a priority for some homeowners, be it to save money in the long-term, or to have the peace of mind of the repayments having been made.
Whatever the reason, there are a number of tips which borrowers may wish to consider.
It’s something which the independent mortgage and insurance broker Heron Financial has recently discussed.
Speaking exclusively to Express.co.uk, founder of Heron Financial, Matt Coulson, said: “Depending on your financial situation, I would advise one of two ways to reduce your mortgage term.
“The first is for those who are currently on a long-term fixed rate which is coming to an end, or are one of 25 percent of borrowers currently on their lender’s variable rate.
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“If you are in one of these situations then now is a great time to remortgage.
“Interest rates are very low at the moment, so being able to capitalise on this to reduce your mortgage term is ideal.
“Instead of lowering your monthly repayments, use this opportunity to review the mortgage term instead, by retaining the same monthly payments but using the difference to pay off more of the balance, thus reducing what you owe.”
It’s a tried and tested technique, with Mr Coulson revealing they have seen borrowers manage to cut their mortgage term by up to five years.
“We’ve helped clients to shave up to five years off their term recently by remortgaging and reviewing their term,” he said.
Mr Coulson went on to highlight another option.
He commented: “The second situation is one to consider for those who have a lot of savings sitting in a cash savings bank account.
“With savings rates at rock bottom a better use of the cash could be to use it to pay off some of your mortgage.
“This can be done using an offset mortgage which will utilise the cash in your bank by off-setting the savings against the balance owed on your mortgage, thus reducing the mortgage term.
“This is especially useful for those in higher-earning brackets, those who rely on bonuses or commission to top up their income or the self-employed who don’t take as high a salary but keep income tucked away for a rainy day.”
Research carried out by money comparison website Moneyfacts.co.uk has found that during 2020, the difference in average rates between a two-year and a five-year fixed mortgage deal was 0.27 percent.
Last year saw the difference in rates fall to their lowest level since 2013, when again the difference was 0.27 percent.
Today, the average rate on a five year fixed deal is just 0.17 percent more than a two year fixed deal, Moneyfacts said.
Mark Gordon, director of mortgages at comparethemarket.com, commented: “Considering the current economic uncertainty and historically low interest rates, fixing your monthly mortgage payments can give greater certainty and peace of mind, making it easier to manage everyday finances.
“Fixed rate deals are usually a lot less than a lender’s standard variable rate (SVR) and the small difference between a two, five, or even ten year fix means that fixing for longer could be the best option for those who want to secure lower rates for a longer period of time and save money in the long run.
“While there are fewer mortgage products available on the market at the moment, there are still plenty of competitive deals to be found by shopping around online and comparing deals.”