First, Why Pay Off Your Mortgage Early?
There are many advantages to becoming mortgage-free sooner rather than later. Here’s what you gain:
- More disposable income each month to spend, save or invest
- No more interest charges eating into your wealth
- True ownership of your home to leverage, sell or leave to heirs
- Peace of mind in tough economic times
- Potentially huge interest savings over the mortgage term
For example, on a £200,000 mortgage at 3.5% interest over 25 years, you’d pay £101,140 in interest. By paying it off in 15 years, that drops to £62,512 – a whopping £38,628 saved!
This example shows that while your monthly payments would be higher, the long-term financial benefits of overpaying and becoming mortgage-free sooner are substantial.
Being mortgage-free isn’t just about avoiding monthly payments. It’s about keeping more of your hard-earned cash and building wealth for yourself, rather than lining the pockets of your lender.
How Can I Pay Off My Mortgage Quicker?
Plan ahead.
Here’s how you plan:
- Check your mortgage terms to see how much time you have left on your mortgage.
- Set a target date to pay it off.
- Review your monthly expenses and check how much extra you can afford to pay.
While these are the simplest ways for a mortgage-free life, it doesn’t hurt to try other ways.
Here are 10 tips that could help you:
1. Regularly Review & Remortgage
The lower your mortgage interest rate, the faster you’ll pay it off.
Look at remortgaging to a cheaper deal – even a 1% rate cut can shave years off your term.
As an example, someone with a £123,000 mortgage paying 2.63% interest on a 25-year term would pay £3,235 in interest for just one year.
Switching to a 1.63% rate could save them almost £21,138 over the life of the mortgage!
In addition to seeking lower rates, you should look at remortgaging every few years.
As you pay down your mortgage and your house value increases, your loan-to-value ratio (LTV) improves. This means you’ll qualify for better interest rates from lenders.
To grab these deals, set a reminder to review your mortgage two months before your current one ends.
2. Overpay When Possible
To quickly pay your mortgage, make extra payments whenever you can.
You can do this by either increasing your regular monthly payments or making a lump sum payment.
Most lenders allow overpayments up to 10% of your remaining balance annually without penalty.
For example, on a £200,000, 25-year mortgage at 3.5% interest, your monthly payment would be around £1,000.
Bumping that up by £200 each month could shave a whopping 5 years off your mortgage and save you around £29,000 in interest!
But there are a few things to keep in mind.
While overpaying saves money long-term, make sure you have a healthy emergency fund before putting extra towards your mortgage.
Overpaying can also limit your flexibility for other investments or unexpected costs.
Finally, check your terms for any penalties for exceeding the allowed overpayment limit.
The key is to FIND a balance between overpaying your mortgage and maintaining your overall financial health.
Be aware that some lenders might automatically reduce your monthly payment if you consistently overpay.
Talk to your lender and ensure your payment stays fixed to avoid negating your overpayment efforts.
3. Set up an Offset Mortgage
If you can’t bring yourself to overpay directly, an offset mortgage lets you reduce the balance you’re charged interest on by the amount of your savings.
For example, if you have £50,000 in offsetting savings on a £200,000 mortgage, you’ll only be charged interest on £150,000 of debt. This saves thousands while still allowing access to your savings.
The beauty of an offset? You can still access your savings for emergencies or other needs, giving you flexibility.
However, keep in mind that offset mortgages often come with slightly higher interest rates than standard ones.
To make this strategy worthwhile, you’ll need a healthy savings balance to maximise the interest reduction benefit.
4. Remortgage to a Shorter Term
Remortgaging to a shorter term can accelerate your path to becoming mortgage-free. This means higher monthly payments but lower overall interest.
You’ll save money on interest in the long run, just like in the previous example. But first, ensure you can handle the increased monthly payments by checking your budget.
If it works for you, contact your lender to discuss remortgaging options. They can explain the increase in monthly payments and the interest savings.
Be aware of potential remortgaging fees, including:
- Early repayment fees to penalise early repayment of the remaining balance.
- Arrangement fees to set up your new mortgage
- Valuation Fees for new property valuation
- Legal Fees or solicitor fees for the legal aspects of remortgaging
Make sure the interest savings outweigh these costs by comparing them. Becoming mortgage-free sooner brings peace of mind and financial freedom.
The saved interest can be used for holidays, savings, or investments. 😌
Therefore, remortgaging to a shorter term is a wise decision if your budget allows. It helps you achieve mortgage-free status faster and saves money in the long term.
5. Boost Your Income
Taking on a second job or side gig, even temporarily, can provide funds to put towards overpaying your mortgage principal.
You could also look into the Rent a Room scheme which allows up to £7,500 in tax-free income per year from a lodger. Those extra earnings go a long way when dedicated to your mortgage.
6. Cut Unnecessary Spending Temporarily
Take a hard look at your current spending on non-essentials like dining out, streaming services, holidays etc.
Cutting back in a few areas, even for a year or two, can fuel big mortgage overpayments. You’d be surprised how quickly the savings add up.
7. Pay Off Other Debts
First before overpaying on your mortgage, clear any higher-interest debts like credit cards or personal loans.
Prioritising the most expensive debts first makes financial sense.
Once you’re only responsible for the mortgage, you can then throw all available cash towards paying it off early.
8. Downsize or Relocate
For some, the best path to becoming mortgage free is simply reducing your outstanding balance through downsizing or relocating.
Consider moving to a lower-cost area where your current equity equals a higher percentage of the new property value. The head start will get you closer to living without a mortgage.
9. Make Biweekly Payments
Making biweekly payments can help you pay off your mortgage faster. Instead of your usual monthly payment, you’d split it in half and pay every 2 weeks.
This adds up to 26 half-payments over a year, effectively squeezing in an extra full payment compared to the standard 12 monthly ones.
This extra payment can shave years off your mortgage term and save you a huge amount of interest in the long run.
10. Use Windfalls Wisely
Don’t let windfalls like bonuses, tax refunds, or inheritances slip through your fingers! Put them to work by applying them directly to your mortgage.
These lump sums can put a big dent in your remaining balance, saving you interest and shortening your mortgage term.
What Should I Do Once Mortgage Free?
It’s the dream scenario – you’ve finally paid off your mortgage in full and now have hundreds or even thousands of extra pounds per month!
What should you do with all this money?
- Boost your retirement savings through increased pension contributions
- Build up an emergency cash reserve of 3-6 months’ expenses
- Invest for the future through stocks, funds or buy-to-let properties
- Help your children or grandchildren with housing deposits
- Spend more on hobbies, travel and enjoying your hard-earned freedom!
Once you’ve made that glorious final mortgage payment, it’s up to you what to do with your new disposable income. 🎉
The Bottom Line
To sum it up, being mortgage-free means you can finally be intentional with your money.
This also means no more throwing money away on interest – you’ve earned the right to truly own your home. (Yay!)
If you’re unsure about which mortgage-free strategies work best for your situation, consult with a qualified mortgage broker.
They can help you plan and give tailored advice that suits your circumstances.
Need a broker? Get in touch. We’ll connect you with a top-qualified mortgage broker for a free, quick, and no-obligation consultation.
