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How to repay your mortgage fast

It’s the one debt most of us are happy to take out and it seems almost second nature to do so; for the majority, it takes nearly our whole working lifetime to repay it. So how can you join the 60% or so of householders who own their homes outright?

I thought because interest rates are rising, and they are expected to continue, it might be opportune to discuss how to repay your mortgage early.

Make additional mortgage repayments

Let’s say you have a £200,000 mortgage at 2.5% over a 25-year term; your repayments would be around £890 per month.

  • If you overpaid by just 10%, £90 per month, you’d reduce your mortgage term by 3 years and save yourself over £9,000 in interest.
  • If you committed to an overpayment of £1,000 per quarter, it would save you over 8 years on your mortgage term and a whopping £24,500 in interest payments.

But, before you start on your mortgage repayment plan, check with your mortgage lender first: some restrict the amount you can repay without incurring penalties.

And when you start your overpayments, ensure your lender will apply the payment to the capital immediately, and not to the following month’s payment.

Pay your mortgage more frequently

Almost all mortgages are set up on a monthly payment in arrears basis, but what if you paid your mortgage fortnightly?

If you paid half after the first fortnight, and the second half two weeks later, you’d pay 26 half payments in the year – 13 full payments, effectively one extra month. Based on the example above you’d save almost £8,000 in interest and shave over 2.5 years off your mortgage term.

Is this a good idea?

Definitely – but never pay any fees to do so.

How can you afford to make overpayments?

This comes back to good money management. We often live to our means, i.e. spend what we have, so when you commit to a regular overpayment, you’re forcing yourself to effectively save.

I appreciate for many it may not be the ideal time to start your mortgage overpayments, with higher energy and food prices, but I have learnt in the last 27 years as a financial planner, that there really is no ideal time to start anything.  Perhaps include your mortgage overpayments in an overall financial health review which could include cutting out wasted spending and prioritising what’s important to you.

If you wanted to be financially savvy try taking your lunch into work each day, walking rather than taking your car, or public transport, turning down your heating thermostat or perhaps consider taking in a lodger to earn an extra income.

If you spent £7 a day on lunch, that’s over £140 each month. Based on the mortgage above a £140 monthly overpayment would save you over £26,500 in interest and almost 10 years on your term.

So when you go out at lunch, just remember it’s costing you more than the price of the sandwich!

Another way to repay early is to save on your interest payments. Interest rates remain fairly low right now, but they are creeping up, so it may be a good time for you to re-mortgage to a lower rate. You can take the saving you make and overpay on your new mortgage.

Also consider taking a shorter-term mortgage. Twenty-five and now 30-year mortgages are common in the UK, but if you set your repayments to be the same as a 15-year mortgage, you’ll pay it off 10 years sooner versus a 25-year mortgage and save almost £30,000 in interest!

5 facts about mortgages

  1. There are currently 11 million outstanding mortgages in the UK against 29 million homes.
  2. Gross mortgage lending has doubled in the last decade to £315 billion.
  3. Repaying your mortgage is a guaranteed investment return that you’re unlikely to ever regret.
  4. Your home is often your greatest asset, repaying your mortgage reduces your risk.
  5. The Bank of England interest rate has increased from 0.1% in December 2021 to 1% today and it’s likely to go higher.
 

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