For many home owners, their mortgage is one of the biggest financial monthly commitments – and also long-term ones – they have. With the average UK house price now worth more than 5 times the average UK annual wage, that’s no real surprise.
However, there are ways to slash years off your mortgage repayment term. Some of them involve an iron will, while others are a little more creative. But, if you think you’d like a mortgage free lifestyle before you retire, then here are five ways to pay off your mortgage faster.
Overpay on your mortgage every month
Of course, this is an obvious option. But, for all that its obvious, how many home-owners actually do it? Not that many! The most straight forward way of doing this, is to simply set your monthly direct debit a certain amount above your contracted mortgage repayment.
Check with your lender about fees related to this. In most cases you can overpay by up to 10% without incurring any fees. And, even a £50 per month overpayment can shave years off your mortgage repayment term and thousands off the interest you repay your lender.
Agree as short a repayment period as possible
Of course, this isn’t precisely repaying your mortgage more quickly than the term. But, for some, it could mean the mortgage on their next home is shorter than the previous one, due to taking on higher monthly repayments over fewer months.
This is something you can do if you do a little research on your own spending habits. If you can find savings of up to £50 per week, you’re then able to pay £200 extra each month than you were before. While £50 per week sounds like quite a lot, for some it’s simply foregoing a costa coffee every morning and an expensive sandwich for lunch at the office.
Now, we know this seems a little counter-intuitive, but hear us out. If you have a large house or sumptuous apartment in a popular part of the town or city you live in, you could earn a lot more in rent than your mortgage is.
Of course, you might need to move out and pay rent elsewhere. But, if you’ve got a car and don’t mind living elsewhere for a few years, you could pay a lower rent by living further out. Meanwhile, your mortgage is being paid – and some – by your tenant.
Do that for five years or so then re-mortgage. But, you’ll pay down a larger amount, topped up by the money you put into your savings account from the rent that was over your mortgage amount. And your new mortgage agreement is sure to be much shorter than your original one.
Use an offset mortgage account
Another option, is instead of taking on a traditional repayment mortgage, do that with a lender who will allow you to offset your savings account. Simply put, you won’t earn any interest on your savings account, but the interest rate charged on your mortgage repayments will go down accordingly.
Considering the low savings rates available right now, that’s not such a bad plan.
Live frugally every other month
Or, why not get in on the frugal lifestyle choice that some people thrive on? Live a frugal lifestyle every other month. So, no meals out, no posh coffees and no new items if you really don’t need them.
Then, pop what you save every other month into a savings account and make an additional mortgage repayment at the end of the year. Even a £600 payment will make a difference, but if you do this properly, you could end up saving a lot more. Do it every year and your mortgage will be repaid before you even realise it!