Should I reduce the term of my mortgage?

We are often asked “Should I reduce the term of my mortgage?” As you might expect, the answer is not a straightforward yes or no, so let’s explore what you need to think about…

On the face of it, reducing the term of your mortgage, or paying it off altogether, might seem a very attractive idea. You can reduce your debt and feel confident that, no matter what happens, your home belongs to you.

Typically, you would increase your monthly payments, which would result in paying less interest over the remaining term of the mortgage. However, dependent how long you have had your mortgage, you may well be at the stage where you are only repaying capital now anyway, so the interest is largely immaterial.

If you have a lump sum of money, you may believe that using that to pay off the mortgage, or reduce the term, is a good idea.

And, for some people that is the case.

However, the challenge when you pay off or reduce the term of your mortgage is that, in most instances, you can’t get that money back easily. We say in most instances, because there are flexible mortgages available that allow you to overpay your monthly mortgage payments, and then take a holiday or even borrow back the money, should you ever need to.

Again, you may not see that as a problem, and we certainly hope that never proves to be the case. But none of us know what is around the corner, and you may be faced with an unexpected large bill, or a change of life circumstances that necessitates you accessing money.

You could access funds by raising an interest only mortgage against your home or set up an equity release. These are both viable options if you have already reduced your mortgage term, but you need to consider both with all the facts before making a decision.

If you are considering reducing the term, we are going to assume that, right now, you have more funds than expected. If that is the case, we would recommend you consider investing your money as an alternative approach. With wise choices, you could achieve a return on your money, something you wouldn’t do if you were focusing on your mortgage, and you can have quick access to the money, should that need arise.

And, as if that is not enough to consider, there is also the added complication of estate planning. If your home has no mortgage the value of your estate could increase, and, consequently, there may be inheritance tax to pay.

You can now see why the answer is not straightforward, and there is plenty to reflect upon.

If you would like some help reviewing the right options for you, please contact us on 01344 875 310.

should I reduce the term of my mortgage?