SAVE £000s OFF THE COST OF YOUR MORTGAGE
Most people end up paying far more for their mortgage than they really should. In the first place there seems to be a kind of universal rule that the mortgage term should last over 25 years - the idea of this is obviously to keep the monthly expenditure to a minimum.
But have you ever considered how much you could save if you reduced the term to only 20 years?
The amount you save will depend on which type of mortgage you have. For instance, on an endowment mortgage where you only pay interest on the loan, the amount of interest paid is the same each month regardless of the term of the mortgage.
However, the endowment policy, if taken over 20 years instead of 25 years can have a surprisingly small increase in monthly payment. The total amount put into the endowment policy can therefore end up being considerably smaller - the extra monthly amount totalling much less than the extra five years worth at the lower monthly rate.
Where the savings really start to accrue though is with the repayment mortgage.
Because interest rates are always subject to variations, the example shown below uses 10% for the sake of simplicity. Naturally, with interest rates being lower than this the total amounts of expenditure and savings will be less. Again, for the sake of simplicity, Miras is not considered.
The repayments on a 10% (APR) £50,000 mortgage over 25 years would be £454 per month. At the end of 25 years you will have paid a total of £136,200. The total interest being £86,200.
