Getting rid of the mortgage early is something that many home

owners in the UK aspire to achieve. Being free of the principal

financial debt in most people's lives at the earliest stage

possible offers financial security and peace of mind for later

on in life. Paying off the mortgage early is no pipe dream

though. In 2003, the average age of outright home ownership was

56, by 2004 the average age had fallen dramatically to just 48!

How home owners pay off their mortgages early

The secret to paying your mortgage off early lies in choosing

the right type of home loan, and this is where flexible

mortgage loans and offset mortgage loans step in.

Flexible mortgage loans, as their name suggests, offer flexible

mortgage repayment terms where overpayment of mortgage is

allowed by the home owner without incurring a penalty. Some

flexible mortgage loans allow overpayment of a limited amount,

such as 10% of the mortgage value, while other flexible home

mortgage loans cater for unlimited overpayment by the home

owner.

The advantage of flexible home mortgage loans is that as well

as allowing you to overpay, you can also underpay, so taking a

'payment holiday' if finances become a little thin.

Underpayment is of course subject to the terms of the mortgage,

and will normally only be allowed if it amounts to less than the

funds that have been overpaid.

Overpayment via flexible home mortgage loans means that you get

to reduce your mortgage capital as well as pay off interest

accrued on the capital each month. For each successive month

that you make an overpayment the amount of interest paid on the

overall mortgage is therefore reduced. An overpayment of just

£65 on an £80,000 mortgage with the interest rate at 6.0%, will

see mortgage loans paid off 5 years early, amounting to a total

saving of some £15,000.

Offset home mortgage loans

Offset home mortgage loans were unveiled to the home owner in

1998, and have gained a great deal of respect from home owners

since that time. Offset mortgage loans help to pay off a

mortgage early by using what is known as a 'sweeper' system.

Providing that the home owner has their current and/or savings

account with the mortgage loans provider, their available

balance is 'swept' across to their mortgage account each day to

offset/reduce the amount of mortgage capital subjected to

interest.

To illustrate the advantages of offset mortgage loans, take a

mortgage of £100,000 and a balance of £10,000 in your current

account and/or savings account. Instead of the interest rate

being applied to the £100,000 every day or every month, the

interest rate would be applied to your mortgage balance less

the balance in your current account / savings account. This

means that interest would only be applied to £90,000 of your

mortgage, effectively making 10% of your mortgage

interest-free!