If you are in the enviable position of having a lump sum that's enough to repay your mortgage, is that actually such a good idea from a financial prospect? Should you keep the mortgage but put money aside, or ignore and keep paying it back?
If you are thinking about buying a property in the near future, you will need to consider your repay mortgage options. Many first time buyers will opt for an interest only mortgage. This kind of mortgage gives you the option of paying the interest on your mortgage loan, but not the capital, over a set number of years/months. At the end of the set term, you are expected to pay back the capital in full.
Although many people will find that interest only mortgages are cheaper in the short term, you may want to look into repay mortgage options carefully before you take out a mortgage. Repay mortgage options can be especially useful if you are unsure as to how you would go about paying back such a large amount of capital and they can also provide you with extra peace of mind.
If you are looking into your repay mortgage options, you may find that a repayment mortgage is the best option for you.
A repayment mortgage allows you to make a set monthly payment each month to cover both your capital loan payment and any interest that has been added onto your loan.
Generally set for between 2-5 years, at which point a review will take place, repayment mortgages can be a great way to keep on track of your finances – your monthly payment amount will not change, thus allowing you to budget more effectively. When you have finished making all of your payments, the property will become yours.
It is worth considering that you must be able to cover your monthly payments as failure to do so can result in a range of negative scenarios, including repossession of your property by the lender.
Many people may also consider whether or not to repay their mortgage if they come into a substantial amount of money or if they find that their financial situation improves over time. An example of this can be an unexpected amount of money coming in (i.e. from an inheritance or other source of funds) or a large rise in a salary.
Generally speaking, if you do find that you have additional money, it is highly advisable that you repay your mortgage off early. However, you will need to keep a keen eye on the current market when you are taking into account your repay mortgage options. As an example, if the interest rate that you are paying on your mortgage is high in comparison to the amount you are likely to get back from putting money into a savings account; your mortgage should take priority.
Additionally, if you do find yourself receiving money, either as a bulk amount or due to a change in circumstances, you will need to consider any other debts that you have outstanding. Personal loan interest rates can be very high in comparison to repayment mortgages.
To this end, if you have a high-rate personal loan outstanding, it may be wise to pay this off first, before you start to make additional payments on your mortgage. To this end, the repay mortgage options available to you will differ depending on your individual circumstances.