3 ways you can pay off your mortgage advice, Home repayments calculator guide

There are 3 ways you can pay off your mortgage

28 October 2022

This guide provides an overview of factors that influence mortgage repayments. A handy calculator tool is also available to help you work out yours.

Additionally, it includes a series of repayment tables that highlight how much you can expect, based on particular mortgage amounts and interest rates.

What factors influence mortgage repayments?

First, your monthly mortgage repayments will be determined by the amount borrowed, the term agreed to, and the interest rates.

The monthly capital repayments for a mortgage with a longer term will be lower because the debt is spread over a longer period. However, you will have to pay more overall for your mortgage, as interest payments would be added each month.

Many factors will influence the final interest rate. However, generally speaking, the higher risk you are, the higher the rate you can expect to receive. A mortgage lender may feel the deal is too risky because of your personal circumstances, market conditions, or any combination thereof.

A mortgage broker will help you find affordable mortgage repayments. They will ensure you have the most favorable rates and advise you on which product you should choose.

There are two main types for mortgage payments. You can choose to pay one or both, or a combination.

Repayment mortgage

Interest and capital

Your capital and interest payments make up your monthly payments

The loan is repaid gradually over the life of your mortgage

A repayment mortgage will charge interest on the amount that you borrow. This is included in your monthly installments. Complete all of your payments and you will have the entire mortgage term paid off.

Hypothecation with interest only

You can get up to 75% off your loan to value on mortgages

Your monthly payments do not cover your loan interest
The mortgage will end and you must pay the amount that you borrowed.

An interest-only mortgage means you will have to devise separate plans to repay the borrowed amount. This is usually done via an investment, such as an endowment or ISA.

The combination of both

Repayment and interest are only

Also known as a mortgage with a “part and one” or “part interests”
For combined mortgages, the 75% loan-to-value (LTV), interest-only cap still applies

Combining both types of repayment on one mortgage is possible. One example is to use existing investment plans for the interest-only component and then repay the balance. Many people look into what mortgage can i get for £1000 a month in the UK for example then work back their affordability from there.

You can do a lot with little

It’s easy to eliminate years of your mortgage, and save thousands of pounds on interest. This is because when you pay off some of the debt you owe you get less interest. Therefore, more of your future payments will go to repaying the remaining debt.

Make sure you have enough money for a rainy-day.

Save some money for the unexpected.

Pay attention to overpayment penalties

Overpayments are usually limited to a certain amount. Penalties for paying more can be imposed.

Timing can make a big difference

You should consider when it is most prudent to overpay. For some mortgages older than 10 years, it may be a better idea to make a single payment at the end.

Many factors will affect your likelihood of making mortgage payments. These include the amount you borrow and the interest rate.

Calculation of interest rates

Rates of interest on mortgages are determined by risk level and product type.

These are some ways to reduce the risk in an agreement.

Extra deposit: While most mortgages require at least 10% deposit, you can increase your chances of getting a great rate by depositing more.

Fix any credit issues: Although it is possible to get a mortgage still if you have certain kinds of bad credit, getting rid of any credit problems and debts that you can resolve can help increase your chances to get the best interest rates.
Contact a mortgage broker A mortgage broker with the right knowledge will help you determine which lender can offer you the most favourable rates. The lowest rate will mean that you pay less every month.

Some lenders may also offer higher interest rates to those who cannot prove income proof or are retired.

Interest rates and how the type of mortgage affects them

There are many types of mortgage products, and which one you choose will impact the interest rates and consequently your monthly repayments.

Fixed-rate : Your interest rate is fixed for a specific period of time. This is because you are paying for the certainty that you will pay what each month.
Variable interest rate A variable mortgage allows for an interest rate to change at any moment during the term.

Trackerrate: A tracker rate mortgage , which is a type of variable-rate mortgage with an interest that’s tied at an external index (usually the Bank of England’s Base Rate), is a tracker rate mortgage .
In-interest mortgages: These offer the lowest monthly payment since only the interest is due each months (capital repayments can be arranged). The entire mortgage debt must be paid at the conclusion of the term by using a pre-agreed repayment method.
This is a compromise between interest and repayment, where one portion of the mortgage goes to each type. The mortgage term will allow you to pay some of the loan debt off, while the remaining amount will remain at the conclusion of the term. To see how your repayments might look if you select this type mortgage, use our calculator.

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