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.

If you’ve watched Sarah Beeny’s ‘How to Live Mortgage Free’ Netlix TV show and are wondering if it can actually be done without living in a garage, shipping container or houseboat, you’re not alone. Here’s our guide to how you can pay off what you owe and live a mortgage-free life.

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.

If you’ve watched Sarah Beeny’s ‘How to Live Mortgage Free’ Netlix TV show and are wondering if it can actually be done without living in a garage, shipping container or houseboat, you’re not alone. Here’s our guide to how you can pay off what you owe and live a mortgage-free life.

Helen Phipps
Insurance expert
5
minute read
Do you know someone who could benefit from this article?
Posted 11 JANUARY 2023

How to pay off your mortgage early

Clearing your mortgage and becoming debt free 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 and achieve financial freedom.

Remortgage for a lower interest rate

Once your current mortgage deal is about to end, consider remortgaging to get a lower interest rate.

Use our remortgage calculator to see what a difference remortgaging could make.

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 and effort, remortgaging every few years could end up saving you thousands in interest costs. Over time as you pay off your mortgage, and if your house increases in value, the equity in your property will go up and your LTV will drop. Your LTV (loan-to-value ratio) is the percentage of money the bank has lent you in relation to the value of your home. So, if you buy a house for £200,000 and take out a mortgage for £150,000, your LTV will be 75%. As your mortgage reduces, so will your LTV. Having a lower LTV gives you a better chance of getting lower interest rates.

With a lower interest rate, you may also be able to afford a slight increase in monthly repayments or save towards a lump sum repayment. If you remortgage onto a lower rate, but keep your monthly mortgage payments the same, it will take less time to pay off your mortgage. 

Your home may be repossessed if you don’t keep up repayments on your mortgage.

Top tip

Set a reminder on your calendar a couple of months before your current mortgage deal ends. This will give you time to look around for a better mortgage deal without having to worry about paying an Early Repayment Charge.

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 – your home could be repossessed if you can’t keep up with your mortgage repayments
  • 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.

You could choose to overpay your mortgage by:

  • increasing your monthly direct debit by an affordable amount
  • setting up a standing order to make extra payments each month
  • making a lump-sum payment

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 the length of your mortgage, you’ll pay less overall interest and pay off your mortgage sooner.

The downside is that your monthly payments 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.

Downsize

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.

We’re not saying you need to move into a tiny house with no living space, but, in an age of economic uncertainty, downsizing to a smaller property can help a lot of people who are financially stretched or looking for a way to cut down 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.

Rent out a spare room

If you have a larger home, don’t want to downsize but want to find a way to pay off your mortgage sooner, renting out a spare room to a lodger, or to guests through something like airbnb could help you earn more money to put towards paying off your mortgage. 

If you’re considering renting out a room, you need to make sure that this doesn’t break the terms of your mortgage agreement. Some mortgages prohibit you from doing this and you could end up with a fine or be forced to pay off your mortgage in full for breaking the terms and conditions.

Frequently asked questions

Should I use my savings to pay off my mortgage?

It’s likely that your mortgage rate is higher than the interest you earn on your savings. Using some of your savings to overpay your mortgage gives you the chance to pay it off earlier, saving thousands of pounds in interest.

Another option would be to put your savings towards a deposit the next time you come to remortgage. This would mean a lower LTV, and therefore, lower monthly repayments. If you remortgage to a lower interest deal which enables you to regularly overpay, you could pay off your mortgage even sooner.

But, using all of your savings to pay off your mortgage, means your money will now be tied up in your house. You’ll no longer have disposable funds for things like emergencies or making further investments. The only way to get hold of the cash would be to sell up and downsize or remortgage to release some of the equity in your home.

Do I have to pay off the whole mortgage?

Not at all. Even if you have enough money to pay off the entire mortgage, it might be wise to use some of it to overpay, then keep the rest aside for a rainy-day fund. Just make sure your lender allows overpayments and that you stay within the limit to avoid an Early Repayment Charge.

Should I pay off my mortgage early?

The chance to live mortgage-free is a fantastic opportunity that most of us would jump at, but there are some things to consider before deciding to pay off your mortgage early:

  • Are there any penalties for paying off your mortgage early? If you’re in the early stages of a fixed-rate or discounted mortgage, the Early Repayment Charge can be significantly high – up to 5% of the outstanding mortgage debt.
  • Do you have more expensive debts to pay? Credit cards, overdrafts and loans typically have higher interest rates than mortgages. It might be better to pay these off first before overpaying on your mortgage.
  • Could your money be put to better use? If your pension pot has been neglected, it might make more sense to top it up rather than use the money to pay off your mortgage.
  • Do you have a rainy-day fund? It’s recommended that you have at least three to six months’ worth of salary as savings, put aside for emergencies. Using that money to overpay your mortgage means that you’ve nothing left to fall back on.
  • What costs are you expecting? If you’ve got kids’ uni fees looming, for example, an offset mortgage might work better than overpaying.
  • Can you afford to overpay? If overpayments leave you struggling each month, you could risk losing your home.

Where can I get mortgage advice?

If you’re looking for a new mortgage deal that could help you repay your mortgage as soon as possible, it’s a good idea to get financial advice from an expert. Our partners, London & Country Mortgages Ltd (L&C)** can help you consider your options so you can find a financial solution that works for you. For fee-free mortgage advice, get in touch with one of their advisers below:

**London & Country Mortgages Ltd (L&C) are a multi-award-winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).

L&C are not part of Compare the Market Limited. Compare the Market receive a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria.

L&C will not charge you a broker fee should you decide to proceed with a mortgage.