Mortgages are the one financial service you spend years trying to get, but then want to be rid of as soon as you can.
For most of us, a mortgage is the key to stepping on and climbing up the property ladder, but it can also be your biggest monthly expense. With recent rate volatility in mind, it’s hardly surprising that becoming mortgage-free often becomes the next financial goal.
David Hollingworth, of mortgage broker L&C, said: “Having a mortgage is a necessary part of making the dream of home ownership become a reality for most people, but from then on, the focus will usually shift to being rid of what will generally be the biggest debt we’ll ever have.”
Overpaying your mortgage is one way to do this, but if you’re faced with the prospect of trying to chip away at a six or even seven-figure sum it can be rather daunting. However, there are several tactics you can adopt that will see you pay little and often, which can shrink your borrowing without dramatically affecting your budget.
Here Telegraph Money shares five tips to help pay your mortgage off early, and potentially save thousands.
1. ‘Round up’ your monthly payments
The “round up” idea has been popularised by the many banks that offer the service to help boost savings – when you make a purchase, say, for £3.50, the money that leaves your current account will be rounded up to the nearest pound and the remainder sent to a savings pot – in this case, 50p.
The same theory can be applied to mortgage overpayments.
“If your mortgage payment is £842, round it up to £850 or £900,” suggested Ying Tan, chief executive at mortgage broker Habito. “The extra goes straight towards your remaining balance.”
Rounding up by just £50 a month – an amount you might not miss from your bank balance – on a £200,000 mortgage over 25 years could knock one year and 11 months off your term and save more than £13,000 in interest, he adds.
2. Overpay by £100 a month
There is also merit in keeping this simple, and sticking to paying a little bit extra each month (whether that’s £50, £100, or more), as this can be a great way to chip away at your mortgage over time.
Mr Tan said: “On a £200,000 mortgage over 25 years at 5pc, overpaying £100 a month could save around £24,000 in interest and shave off over three years from your term.”
You might want to think about setting up regular overpayments at those occasions where you feel able to loosen the financial purse strings – such as getting a promotion or pay increase at work.
“Earmark a portion of salary increases or reduced expenses, like childcare costs dropping, towards your mortgage,” said Aaron Strutt, product and communications director at Trinity Financial.
3. Maintain your repayments when your mortgage rate drops
If you’re on a variable-rate mortgage and your repayments drop when interest rates fall, you could ask your lender to maintain your repayments at their former level.
This can be easier to budget for, as you’ll already be used to paying your mortgage at the higher rate.
Mr Hollingworth pointed out that you can also do this if you have slipped into paying your lender’s standard variable rate (SVR) before remortgaging to a more competitive deal.
“This could be a great way to make the most of a lower interest rate,” he said. “For example, if a £200,000 repayment mortgage was originally at 5.25pc, the monthly payment would be £1,198.50. Switching to 4.25pc would cut the payment to £1,083.48 a month, but maintaining the original payment would lock in an overpayment each month and would ultimately pay the loan off three years, 10 months early [and save £21,950 in interest].”