5 tips to pay off your mortgage early
Most people believe that they will be saddled with their mortgage debt for 20-30 years but it’s actually easier than you think to pay your mortgage off early.
Put simply, it’s just a case of spending less, earning or saving more, and making the most of your money by investing it back into your mortgage (or putting it into a high interest savings account if you aren’t allowed to make overpayments).
You could choose to pay off your mortgage in huge chunks, but this could involve having to make huge sacrifices where in fact just a few minor changes can have a real impact on the duration of your mortgage term.
Here is a step-by-step guide on reducing your mortgage term:
1. Reduce your outgoings
Many of us spend much more than necessary so we need to look at ways of cutting costs.
Here are just a few ideas to get you started:
Take advantage of freebies and discounts: Savvy spenders never pay full price for anything. If you know where to look you’ll usually find a voucher or discount code for money-off and there are lots of websites and forums that will let you know the companies that are giving away freebies.
Budgeting doesn’t have to be dull – there are lots of ways of enjoying days and nights out without spending over the odds for it.
Cut your bills: Whether its insurance costs or energy bills, there are easy ways to try and trim your outgoings. Don’t let your insurance automatically renew and compare other providers to see if you can find a cheaper deal. Switching energy providers, or even just the way you pay your bills could save you money each month.
2. Increase your income
We’re not talking about switching to a high-flying career here – although great work if you can get it! If your wages don’t stretch very far each month, there are ways of supplementing your income – let’s take a look at some of the things you could consider.
Make money from your home: If you live on your own and have room to spare, then you could consider getting a lodger to bring in additional cash. It’s not for everyone of course. Alternatively if you have a valuable parking space that you don’t use, then renting it out to a local worker could make you a pretty penny.
Make money in your spare time: You may not have the time to fit in a part-time job; however you can make a little bit of extra cash in your free time. Search online for mystery shopping opportunities; take online surveys or even sign up for TV extra work.
Sell, sell, sell: Having a clear out is good for the soul as well as your pocket. Recycle old clothes, CDs and mobile phones for cash, and sell any unwanted items on eBay or local-selling pages. You’d be surprised what people buy!
3. Invest your extra cash into your mortgage
If you’ve followed the above two steps you should be left with some more disposable cash at the end of the month – you have three choices; spend it, save it, or use it to pay off your mortgage. If you really want to be debt-free as early as possible, then you should consider the latter.
Paying extra off your mortgage can significantly reduce the term of your mortgage – and therefore will cut down on the amount of interest you pay over the whole term.
If you decide to make overpayments – whether a regular monthly amount or a one-off sum – check with your provider whether they allow overpayments first of all. If you are currently on a fixed-rate deal, then you will likely have a limit of how much you can overpay by – it’s typically around 10% - but even small amounts can make a big difference.
4. Remortgage to lower your payments
Are you currently on a high interest rate? It may be possible to remortgage onto a lower rate which will help to free up some extra cash which can be injected back into your mortgage.
For example, if you are currently paying £1000 a month and are comfortable with this, then finding a mortgage deal on a lower rate which gives you payments of £700 a month could set you on the path to financial freedom. You could choose to use the £300 surplus to spend on other things or you could choose to invest the £300 as a monthly overpayment on your mortgage (if allowed to do so by your provider). You’ll still have payments of £1000 going out each month, but if it’s affordable it will go a long way to paying your mortgage off several years early.
5. If you can’t overpay, then save!
As mentioned above, some providers can put a stop to you making overpayments if you are on a fixed-rate deal. If this is the case, but you have money left at the end of the month, then make sure you invest this into a high interest savings account. An ISA will let you save approx. £15,000 per year cash-free so could be a good option. Once you are out of your fixed-rate deal then you could use your savings to make a lump-sum payment which will help to reduce the overall term of your mortgage.