Dream of being mortgage-free?

Follow my tips to help you clear your debt early A mortgage is the one type of debt many of us are happy to have, even though it takes much of our working life to repay it.

But how can you join the 28% of people who own their homes outright?

As interest rates have increased and the cost of borrowing is now more expensive than it was, I thought now would be a good time to discuss how to repay your mortgage early, if you wish to do so. So here are my top tips…

Make extra payments

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

If you overpaid by just 10%, or £90 per month, you’d reduce your mortgage term by three 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 eight years on your mortgage term and a huge £24,500 in interest payments.

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

When you do start your overpayments, ensure your lender applies the payment to the capital immediately and not the next month’s payment.

Pay more frequently

Almost all mortgages are set up on a monthly payment-in-arrears basis but what if you paid your mortgage off 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, so effectively one extra month.

Based on the example above, you’d save almost £8,000 in interest and shave more than 2.5 years off your mortgage term. Is this a good idea?

Most definitely – but never pay any fees to do so.

How to afford it

With the cost-of-living crisis, making overpayments on your mortgage is currently a lot more difficult than it normally would be. It’s always hard to find additional money in the budget but if you can somehow cut back, reduce or make sacrifices to save, your future self will thank you.

I appreciate that for many, this may not be the ideal time to start overpaying your mortgage but in the 28 years I have spent as a financial planner, I have learned that there really is no ideal time to start anything.

To save a few pennies here and there, try taking your lunch into work each day, too.

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

Another way to repay early is to save on your interest payments.

The average rate was 6.94% in the autumn – the highest since 2002. But on May 19, the average rate on a twoyear fixed deal was 5.34%, according to financial advice website Moneyfacts.

Economists forecast that rates will reduce from the current 4.5% to 3.75% in 2024 and 2.75% in 2025, so keep your eyes peeled for good deals.

Also consider taking a shorter-term mortgage. Nowadays, 25 and 30-year mortgages are common but if you set your repayments to be the same as a 15-year mortgage, you’ll pay it off far sooner. Just be mindful of any possible overpayment penalties.

For more financial advice, visit WarrenShute.com

‘‘ If you can cut back or make a sacrifice to save, your future self will thank you