How to live mortgage free
How to live mortgage free
As homeowners, we all dream of being mortgage free. Paying off your mortgage in full can give you peace of mind in knowing that you own your property 100%, while freeing up your income.
Here’s our guide to how you can pay off what you owe and live mortgage free.
How to pay off your mortgage early
Clearing your mortgage could mean you have more disposable income each month and could save you thousands of pounds in interest payments.
It may seem like an impossible dream, but with careful financial planning and a fair bit of effort, it’s possible to pay off your mortgage early.
Remortgage for a lower interest rate
Once your current mortgage deal is about to end, consider remortgaging to get a lower interest rate.
Fixed rate mortgages with lower interest rates are set for a certain length of time. Once that period ends, you’ll be put on the lender’s standard variable rate (SVR), which could mean your mortgage repayments increase. Start shopping around for a better deal a couple of months before your fixed rate term expires.
If you’re prepared to put in the time, effort and paperwork, remortgaging every few years could end up saving you thousands in interest costs.
With a lower interest rate, you may also be able to afford a slight increase in monthly repayments. If you remortgage onto a lower rate, but keep your monthly repayments the same, it will take less time to pay off your mortgage.
Make mortgage overpayments
Another way of clearing your mortgage early is to pay more than the required amount. You could do this by increasing your monthly repayments or by paying a lump sum.
However, before you take this approach:
- make sure you can afford the overpayments
- check whether your mortgage lender will allow overpayments. Most lenders allow overpayments of up to 10% each year. But this can vary depending on the lender. Some may charge a fee.
Even as little as £60 more each month could make a difference, allowing you to pay less overall interest and clear your mortgage earlier.
To find the extra cash, you’ll need to be disciplined and stick to a budget each month. Find ways to make savings, such as reducing your grocery bills by shopping at a low-cost supermarket or switching energy suppliers for a lower tariff.
Get an offset mortgage
If you don’t want all of your savings tied up in your property, consider an offset mortgage. This is a savings account linked to your mortgage, which is offset against the mortgage balance.
An offset account can reduce the amount of interest you’d normally pay. Rather than receiving interest on your savings, the interest calculated is deducted from your mortgage amount minus the savings balance in your offset account. For example, if you have a mortgage for £200,000 and savings in your offset account of £20,000, you’ll only be charged interest on £180,000.
Reduce your mortgage term
If your mortgage lender agrees to shorten your mortgage term, you’ll pay less overall interest and pay off your mortgage sooner.
The downside is that your monthly repayments will be higher. Although reducing your mortgage term is less flexible than offsetting or overpaying, it could be a more straightforward solution if you can commit to higher monthly repayments, for example, you have a pay rise or an extra salary coming in each month.
It may seem a bit drastic, but for certain homeowners downsizing to a smaller property or moving to a more affordable area could help reduce mortgage repayments or even clear the mortgage entirely.
Once considered something that only ‘empty nesters’ or retirees would do, downsizing makes a lot of economic sense for people of all ages.
In an age of economic uncertainty, higher university fees and increasing household debt, downsizing to a smaller property can help a lot of people who are financially stretched or are looking for a way to cut down on their monthly debts.
Whether this could help reduce your mortgage will depend on the market value of your property and how much you could save by downsizing. You’ll also need to take into account moving costs.