Three Tips to Help You Pay Off Your Mortgage Faster
If you're like most UK homeowners, one of your highest financial priorities is paying off your mortgage faster. However, it's quite shocking to see just how many people these days are actually retiring with mortgages still on their homes and only meagre pensions available for the repayments.
Somewhere along the line, they missed out on opportunities to take advantage of a few simple strategies that would have had them mortgage-free, years ago. These 'pay off mortgage quickly' strategies can be used by anyone who is interested in paying off their mortgages faster!
Any consumer taking out a mortgage today without an easy-to-implement mortgage reduction plan designed to pay off mortgage quickly is missing the opportunity of a lifetime. Let's say you took out a £200,000 mortgage today at 6.00% for 25 years. Your monthly payment will be approximately £1288.60. In 25 years, you would have to repay over £386,500 for the mortgage including the original loan and interest before you can invite your friends and family to the mortgage burning party and become mortgage-free.
That's almost double the amount of the original loan. More importantly, it's the additional time—time spent having to work, time not spent relaxing, travelling and doing those things that you enjoy the most.
Here are three easy-to-use tactics for paying off your mortgage faster. They won't hurt your wallet or purse in the short term, but they will help you retire mortgage-free in the long run.
Pay off mortgage quickly tip 1: Increase your monthly payments
Using the example mortgage scenario above, our first tip for paying off your mortgage faster is to increase your monthly payments. Even if you simply round up the above figure to £1300 (so you'll pay off an extra £11.40 a month) you'll knock six months off your mortgage term and you'll save over £4,000 in interest. Just think how much more you could save by increasing your payments even more!
Let's face it—£11.40 over a month is nothing—it wouldn't even buy you a coffee a day! So, cut down on the morning coffee or the afternoon cake and put the savings you make towards paying off your mortgage faster and becoming mortgage-free!
Pay off mortgage quickly tip 2: Implement a pre-payment plan
After you've put tip 1 into play, you can start working on tip 2 in the pay off mortgage quickly stakes—lump sum repayments. You've already cut six months off your mortgage life for just £11.40 a month as you go through the paying off your mortgage faster process. Let's take the same situation and put a principal pre-payment plan into motion. Simply put, a pre-payment is making an additional lump sum payment to lower your outstanding borrowings.
So, if you save up and pay an additional lump sum payment of just £500 every year then you may reduce your mortgage term by another 19 months and you could save over £13,000 in interest. And, some years you may be more flush than others which could see you save even more, and really make progress in paying off your mortgage faster.
Do bear in mind that you must check the terms of your mortgage deal when it comes to overpayments and lump sum payments; if you are tied into a deal then you may be charged a penalty to do this. And, when paying off your mortgage faster, also make sure to check when interest is calculated as you want your money to work for you immediately. If your interest is calculated daily then this won't be an issue; any lump sum you put in will have an immediate effect on your interest charged. But, if your interest is charged monthly or annually, then find out when the best time near the interest calculation date is to make the overpayment, and move closer to becoming mortgage-free.
If your interest is calculated in January, for example, then making a payment in February is a bit pointless as the lender won't factor in the payment for another 11 months. When paying off your mortgage faster, you'd be better off here putting the money in a savings account where it can earn some interest until the time comes to make the payment (which will also increase your overpayment when you make it).
Pay off mortgage quickly tip 3: Make all your money work for you
Many people are using flexible mortgages nowadays such as offset or current account deals to help their pay off mortgage quickly process. Here, you keep all of your money in one account. How to start paying off your mortgage faster this way? Well, the account will take in your salary, your savings, and your mortgage. This allows you to use any savings you have (or even your salary before you spend it!) to lower the mortgage automatically as all of your financial products are linked. You can still access your savings if you like, but if you leave them in the account, they will burn off your mortgage more quickly, and you'll get closer to becoming mortgage-free.
How simple is that? Easy to do, isn't it?
There you have it! Three easy to implement pay off mortgage quickly tips that could reduce your mortgage by years, save you thousands of pounds in interest charges, and while becoming mortgage-free, give you more disposable income in the long run. You've effectively given yourself an opportunity to enjoy a better lifestyle for a longer period and peace of mind when you retire by simply paying off your mortgage faster. After all, isn't that what we're all working for today?
Check out the best mortgage providers