Paying off your mortgage ahead of schedule can save you thousands of pounds in interest and provide financial freedom years earlier than planned. Here are proven strategies to help you pay off your mortgage quicker.
How Can I Pay Off My Mortgage Sooner?
1. Make Overpayments
The most straightforward way to reduce your mortgage term is through overpayments.
We recommend checking your mortgage agreement first; most lenders allow overpayments of 10% of the remaining balance annually without penalties. Don’t have much leftover cash each month to afford overpayments? Even small, regular overpayments can make a significant difference, and work bonuses or inheritance money are ideal for lump-sum overpayments. Consider setting up a standing order to make the regular payments easier to manage.
Example Impact:
On a £200,000 mortgage at 4% over 25 years, overpaying by £100 monthly could:
- Reduce your term by 4 years.
- Save approximately £19,000 in interest.
2. Switch to a Better Rate
If you haven’t reviewed your rate in a while, it could be worth seeing if you can switch to a better rate. Remember to remortgage when your fixed term ends. This is a great opportunity to compare rates across different lenders. Factor in any switching fees and maintain the same monthly payments even if you secure a lower rate. Your mortgage broker can do all the legwork for you, so you don’t have to research the rates yourself.
3. Change Payment Frequency
Changing payment frequency, such as switching from monthly to biweekly payments, can also help you pay off your mortgage quicker. This results in 26 half-payments (13 full payments) per year instead of 12. The extra payment reduces the principal (the amount you owe), and many lenders offer this option without additional fees, so you’ve got nothing to lose.
4. Use Offset Mortgages
If you have substantial savings, an offset mortgage could help you pay off your mortgage. With an offset mortgage, you only pay interest on the difference between your mortgage and savings. By linking your savings account to your mortgage, you can reduce the interest charged while maintaining access to your money. It’s particularly beneficial for higher-rate taxpayers.
5. Round Up Payments
Let’s say your monthly payment is currently £945; you could round it up to £1,000. This small adjustment could help you become mortgage-free sooner.
The small difference is barely noticeable in your budget, but the extra amount reduces your principal faster. We recommend setting up automatic payments to ensure consistency.
6. Use Windfalls Wisely
Apply unexpected money towards your mortgage. This could include tax refunds, inheritance, work bonuses, the sale of assets or competition winnings.
7. Create Additional Income Streams
Giving your income a boost could help you pay off your mortgage sooner. You could consider a side hustle, rent a spare room (potentially tax-free under the Rent a Room scheme), sell unnecessary items or use overtime opportunities. We recommend dedicating all extra income to mortgage overpayments.
8. Cut Expenses
Becoming mortgage-free sooner is not just about getting more money. You can also look at ways to reduce expenses and redirect these savings to your mortgage.
Ways to cut expenses include:
- Review and cancel unnecessary subscriptions.
- Switch utility providers.
- Reduce dining out.
- Use cashback credit cards (paying off in full monthly).
- Shop around for better insurance deals.
Important Considerations & Final Tips
Before Making Extra Payments:
- Build an emergency fund first.
- Clear high-interest debts.
- Check for early repayment charges.
- Ensure your mortgage allows overpayments.
- Consider whether the money could be better used elsewhere (e.g., pension contributions).
Calculate Your Savings:
- Use online mortgage overpayment calculators.
- Keep track of the interest saved.
- Review your progress regularly.
- Adjust your strategy as needed.
Maintain Motivation:
- Set clear milestones.
- Celebrate reaching targets.
- Track your progress visually.
- Remember the long-term benefits.
Stay Informed:
- Monitor interest rates and market changes (your mortgage broker can help with this!).
- Review your mortgage statements regularly.
- Stay in contact with your mortgage advisor.
Remember, even small additional payments can make a significant difference over time. The key is to find a sustainable strategy that works with your budget and lifestyle, while maintaining other important financial goals.
Your mortgage broker will be one of your best allies in helping you become mortgage-free sooner, and it’s one of the many reasons customers stay with us at Agentis. They trust us to provide the right advice at the right time to help homeowners pay off their mortgage quicker.
Contact our whole-of-market mortgage brokers today to book your free initial consultation.
