Home in on the mortgage goal

Repay early to cut off years and save thousands

Amortgage is the one debt most of us are happy to take on – and it seems almost second nature to do so. And for the majority of us, it takes nearly our whole working lifetime to repay it.

So how can you join the 60% or so who own their homes outright?

With interest rate rises expected to continue, it’s a good moment to look at 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. Monthly repayments would be around £890.

If you overpaid by just 10% a month – £90 – you’d shorten it by three years and save over £9,000 in interest.

If you committed to an overpayment of £1,000 per quarter, it would save you more than eight years, and a whopping £24,500 in interest payments.

But before you start any early repayment, check with your lender – some have penalties if you repay more than a set proportion.

Also ensure your lender will apply overpayments to the capital immediately, not to next month’s payment.

Pay your mortgage more frequently

Almost all mortgages are set up to pay monthly in arrears

– but what if you paid fortnightly instead? If you pay half after the first fortnight, and half two weeks later, then in 52 weeks you make 26 half-payments. That’s 13 full payments, or effectively one extra month.

Based on the example, you’d save almost £8,000 interest and shave off more than two and a half years.

Is this a good idea? Definitely – but never pay any fees to do so.

How can you afford to make overpayments?

We often live to our means, spending what we have. When you commit to a regular overpayment, you in effect force yourself to save.

I appreciate that with higher energy and food prices it may not be the ideal time to start overpayments. But in 27 years as a financial planner I’ve learned that there really is no ideal time to start anything.

Perhaps include overpayment in an overall financial health review, looking for any waste and prioritising what’s important to you.

Try taking your lunch into work each day, walking rather than taking the car, using public transport, turning down your heating or maybe taking in a lodger to earn an extra income.

If you spent £7 a day on lunch, that’s £140 a month. Based on the mortgage above, a £140 monthly overpayment would save more than £26,500 in interest and almost 10 years of payments. 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’re creeping up, so it may be a good time to remortgage to a lower rate.

You can take the saving you make and overpay on your new mortgage.

Or look at a shorter-term mortgage. Mortgages of 25-30 years are common in the UK, but if you set your repayments to be the same as for a 15-year term, you’ll pay it off 10 years sooner and save almost £30,000 in interest.

For more ways to repay your mortgage quickly, search online for The Money Planner podcast.