It’s a general financial rule that you pay more for debt than you earn in savings, meaning that getting out of the red should be the first target of any savings and investment plan. So why not apply that thinking by planning to pay off your mortgage early?
Mortgages can be such huge, long-term debts that it can be hard to imagine clearing them, while interest rates are typically much lower on mortgages than on other types of loans.
But paying off a mortgage early can save tens of thousands of pounds, as well as giving you freedom and security to plan your finances… and your life.
Read our guide to paying off your mortgage in double-quick time:
- Should I pay off my mortgage early?
- Does my mortgage allow overpayments?
- How to reduce your outgoings
- How to increase your income
- Using savings to pay off a mortgage
- Offset mortgages
- Remortgage to find the right deal
- Try our mortgage calculator
If you’ve cleared other, more expensive debt – such as credit cards and loans – it’s time to start thinking about paying down your mortgage.
A mortgage is like any other kind of debt – you may not be renting your property, but you are renting the money you used to pay for it.
Typical mortgages may last for 25 years, although many much longer terms are now available. A longer deal may result in reduced monthly payments, but the total amount of interest you pay over the entire length of the term will increase significantly. For example:
- A mortgage of £100,000 at 6% paid off over 25 years would cost £193,200
- A mortgage of £100,000 at 6% paid off over 15 years would cost £151,920
What’s more, reducing mortgage debt can make you eligible for better deals when you come to remortgage – creating a virtuous circle by freeing up more of your money to reduce the debt even further.
If you’ve decided you want to pay down your mortgage, the next step is to check the terms and conditions of your current deal – overpayments may not be allowed, and there may be a significant charge if you repay the mortgage early.
Limitations on overpayments often apply on fixed-rate mortgages when you’re in the time-limited, fixed-rate period.
Even so, you may be allowed to overpay a certain amount without penalty – 10% of the entire debt in a year is typical.
The only way to know for sure is to check the paperwork, or speak to your provider. If you find restrictions on overpayments or early repayment, remember that these will probably end when the fixed-rate period ends – so get that date in your diary.
If your deal does allow you to pay down your mortgage, it’s time to start thinking about how you find the funds to do it…
We’re all about saving dosh at Money Magpie and there are innumerable ways to do it… get started with our 50 top tips for day-to-day saving.
For those eager to get started on saving cash, try these four big-hitting ideas:
Cut the cost of insurance
We all need insurance and know how important it can be, but we also hate paying for it…
Insurers make their profits from customers who stay loyal to them and don’t shop around.
Don’t fall for the auto-renewal trap – we can help you quickly and easily compare car insurance, home contents insurance and breakdown cover.
Save on your broadband and energy bills
As with insurance, there are major savings to be made on both your broadband and energy bills by simply shopping around for the right deal at the right price.
Get some freebies
What better way to save than to get stuff for free? Always check our regularly updated list of top freebies.
Have fun on the cheap
Budgeting doesn’t mean you can’t have fun – there are lots of ways to have a good time without the big price tag. Go out for dinner for less with OpenTable and read our guide to eating out on the cheap.
Use price comparison sites to get the best price on everything you buy. Try Foundem, Kelkoo, My Supermarket and Pricerunner.
While reducing outgoings can often be more important than increasing income, there’s nothing to stop you doing both, and it’s surprisingly simple to tap into your inner-entrepreneur.
Try our guide to easy ways to make money, or – if you’re eager to get going – start with these three big-hitting ideas.
Make money from your house
What better way to pay off your mortgage than by making the property pay for itself?
Try renting out your driveway using Park Let or JustPark, or find a tenant for your spare room through Easyroommate.com.
If you’re looking for something more short term, why not get involved with the gig economy by offering your room as a lodging through Airbnb?
Your spare room doesn’t have to be filled by more human beings… you can rent it out as storage space through companies such as Storemates.
If you think your home’s a real star, try pitching it for film and TV work – learn more on sites like Shootfactory and jj Media.
Make money in your spare time
There are all sorts of ways to make money in your spare time with options to suit almost any circumstance.
As just a couple of examples, you could do some mystery shopping on the weekend, or complete online surveys for companies like Toluna.
Creative types may want to try their hand at selling their skills – that could be anything from homemade cosmetics, to making their photographs available as stock photography, or making their way as a freelance writer.
Fancy yourself as a host? Why not hold a product party at your home or, if your culinary skills are up to it, you could even set up a pop-up restaurant in your front room.
Recycle for profit
You can do your bit for the environment and make some money while you’re at it.
Don’t chuck out old mobile phones – recycle them using our mobile recycling tool to find the company that will give you the most cash.
Another way to reduce your clutter and waste while earning money is to sell stuff on eBay – you could end up making hundreds from things that are just lying at the back of cupboards.
While it’s possible to find savings or investments that pay higher interest than the rate charged on your mortgage debt, this is unlikely to be easy and the returns may also be subject to tax.
When making your calculations, you also need to remember that interest rates on both savings and mortgages are subject to change, and that paying down mortgage debt can help you access better deals when you remortgage.
Many people like to keep a rainy-day savings fund – if you do, read our article for help finding the best savings accounts, then use our service to compare easy access savings accounts. Also think about the pros and cons of offset mortgages…
One way to retain the benefits of an emergency savings fund while using your cash reserves to pay down your property debt is to consider an offset mortgage (sometimes referred to as a flexible mortgage).
With such an account, the daily level of your savings are considered when calculating the level of your mortgage debt and used to determine the amount of interest you pay – in other words, the savings are offset against the debt, one of the benefits being that you therefore won’t pay any tax on savings returns.
Options are also available that offset current account balances, something that may suit those who regularly keep high balances in their current account.
Offset mortgages are very flexible, replicating an emergency savings fund by allowing you to borrow back some of the overpayments you’ve made.
If handled in the right way, an offset account can help you pay off your mortgage much more quickly and cheaply than you would with an ordinary deal… but there are downsides to consider.
Fees on offset accounts can be higher than on standard mortgages, while the financially undisciplined may find that the flexibility encourages them to repeatedly ‘borrow back’ available funds, lengthening the period of debt and increasing the interest they pay.
As with most areas of personal finance, shopping around to find the right deal is the absolute key to saving money.
This applies to mortgaging and remortgaging, although the complexities means that particular care is needed, taking into account things such as:
- Whether you’ll be charged a penalty for switching mortgages
- Mortgage fees
- Interest rates
- Whether you want a fixed, discounted or tracker-rate deal
- If an offset mortgage is suitable
To help you with all such questions, Moneymagpie has teamed up with London & Country, one of the best independent brokers in the UK.
To guide you through the mortgage maze and set you on the path to some serious money saving, you can speak to one of London & Country’s expert mortgage advisers for free, and with no obligation.
If you’re not quite ready to speak to an expert adviser, why not crunch some numbers using our free and easy mortgage calculator?
You may be surprised by how much you can save by overpaying and finding the right deal…