How to pay off your mortgage in 10 years
HOMEOWNERS can turn the dream of being mortgage-free into a reality by being clever with their cash – and it can be done within a decade.
Saving on bills and budgeting will leave borrowers with extra cash that can be put towards mortgage repayments, leaving them debt-free sooner.
Not only would this significantly reduce your monthly outgoings, homeowners could also save thousands of pounds otherwise paid in interest over the long-term.
Most lenders will let you overpay up to 10% of the outstanding mortgage amount per year, although this could vary so double-check this in advance.
If you overpay more than allowed, you’ll be hit with penalty fees typically between 1%-5% of the outstanding mortgage.
For example, a 3% fee on a £150,000 mortgage would force you to fork out £4,500 so it’s best to stick with in the terms of your agreement.
'I paid off my £84,000 mortgage on a three-bed house in nine years'
LEON Oczeretnyj, 31, paid off his £84,000 mortgage in nine years by avoiding nights out, selling old Nintendo games and overpaying on his loan by 10% each year.
The instrument technician and electrician bought his first home – a three-bedroom semi detached house – in 2011 for £99,000, putting down a £15,000 deposit.
But when he received the first full mortgage statement after a year, Leon was shocked to learn his mortgage debt had only been reduced by £2,000 despite paying over £5,500 to the bank.
Leon, who lives in Lincolnshire with his girlfriend Whitney Bartlett (both pictured), 24, told The Sun earlier this year: “After realising I’d given the bank over £3,500 in interest alone, I decided to overpay as much as possible.
“I stopped prioritising the house renovations as I thought the money I would save on mortgage repayments could pay for the work once the debt was paid off completely.”
Leon earned around £42,000-£52,000 a year depending on how much overtime he worked, but aimed to put aside roughly £500 extra a month into savings to go towards overpaying his mortgage.
Pausing the renovation work left him with spare cash, while his frugal lifestyle already meant he rarely spent money on clothes shopping and nights out.
He also sold a Super Nintendo games console with 33 games from the 1980s for £1,050, and put cash into Premium Bonds, which often saw him win between £25 and £100 a month.
At the end of each year, he’d then use the cash to overpay his mortgage by 10%, which was the maximum he was allowed to without being slapped with early repayment fees.
He began by overpaying £6,000 in the first year, but the amount then naturally reduced as the value of the outstanding mortgage dropped.
When his first two-year fixed-rate deal came to an end, he stumped up more cash before locking into another to increase his equity in the house and reduce the amount he needed to borrow.
It meant after four years of home ownership, Leon had reduced his 85% LTV mortgage to a 50% LTV mortgage.
In January 2020 at the age of 30, just nine years after buying his first home, he paid off the mortgage in full.
It meant his monthly mortgage costs of £480 a month dropped to nothing.
After he cleared the mortgage debt, Leon paid around £800 in total on outgoings including regular bills and food shopping.
In January, Leon said he was keen to keep up the habit of overpaying on his mortgage as he looks to take another one out to buy a bigger, more expensive property.
He said: “I felt very accomplished when I’d paid off the mortgage.
“But I’ve still got a way to go to finish the renovations, sell the property and then move on to the next one.”
“Given that the mortgage is most people’s biggest outgoing, no longer having to pay it is extremely appealing,” Mark Harris, chief executive of mortgage broker SPF Private Clients, told The Sun.
‘With interest rates at rock bottom, savings are earning little or no interest so there isn’t much point leaving your cash sat in a savings account.
“Once you factor in inflation, you are actually losing money over time.
“By chipping away at your mortgage balance, you are making your money work harder – a win-win situation.”
If you’re keen to pave the way for mortgage freedom, we explain how you can achieve it below.
Switch your mortgage to a cheaper deal
The first step towards mortgage freedom is to switch your home loan to the cheapest one, which works as long as you’re not already locked into a fixed rate.
Borrowers are transferred onto their lender’s pricier standard variable rate (SVR) when their deal comes to an end, pushing up prices by £2,040 a year on average, according to mortgage broker Habito.
This applies if you’re with one of the big six mortgage lenders, which are Halifax, Nationwide, NatWest, Santander, Barclays, and HSBC.
In January 2021, the average SVR was 4.41% across all mortgages, according to comparison site Moneyfacts.
In contrast, the cheapest two-year fixed rate of an 80% loan to value (LTV) mortgage was 1.86%, while the cheapest five-year fix was 1.92%.
In other words, if you had a £150,000 loan and you switched from the average SVR rate to a rate of 1.86%, your payments would drop by £200.49 a month, from £826.10 to £625.61.
This means over the two-year fixed deal, you’ll save £4,812 in mortgage repayments.
Alternatively, if a borrower switched to the average five-year fixed rate deal, they could lower their mortgage repayments by £196.14 – saving them £11,768 over the term.
However, if you’re locked into a fixed-term deal you may want to hold off switching as quitting before the term ends will most likely result in hefty penalty fees that will eat into any savings you could make.
Shorten your mortgage term
It’s not just switching from an SVR to a fixed deal that can help you to cut costs – you can also save cash by cutting the length of your mortgage.
Eleanor Williams, finance expert of Moneyfacts, told The Sun: “Those who have found that current circumstances have meant more time at home recently, and therefore they have more disposable income, may wish to consider discussing reducing their mortgage term.
“While this may mean increasing their monthly mortgage payments, it means they could clear their mortgage more quickly, therefore there is less time for interest to build up and the overall cost can be reduced.”
For example, taking a £150,000 mortgage with a 1.86% interest rate, you’d pay:
- 40 year mortgage: £62,916 in interest overall or £443 repayments a month
- 35 year mortgage: £54,325 in interest overall or £486 repayments a month
- 30 year mortgage: £45,942 in interest overall or £544 repayments a month
- 25 year mortgage: £37,769 in interest overall or £626 repayments a month
In other words, by cutting your mortgage term by 10 years from 35 to 25 years, you’d save £16,556 in interest over the full term.
Meanwhile, your monthly repayments will rise by £140.
Of course, this assumes your interest rate will stay the same throughout the mortgage term.
Just be aware that if you’re midway through your current mortgage deal your provider may have to re-do affordability checks.
You may also be charged a fee to shorten your deal, so you could be better off doing this when your current deal ends.
Cut household bills and set a savings goal – but be realistic
Once you’ve cut your mortgage costs as low as possible, it’s time to go through your other bills and set a savings goal – but make sure you are reasonable.
Most of us are already spending more time at home due to the government’s coronavirus restrictions, which have forced restaurants, non-essential shops and gyms to close.
This, in turn, may lead some of us to build up extra savings.
Yet you could still save more money by cancelling subscriptions, avoiding takeaways and cooking food with items you already have at home.
Mr Harris said: “The only thing with setting a goal – by all means do so, but don’t be unrealistic. For example, you aim to overpay [your mortgage] by £500 a month even though that would leave you with precious little over.
“You are unlikely to stick to it and you will be miserable too.
“Set a realistic amount and don’t beat yourself up if something unexpected crops up and you can’t make a payment one month.”
We’ve rounded up 50 ways to save money including best apps and tips from experts.
Overpay on your mortgage – but don’t pay more than you can afford
If you’ve managed to cut your spending and save cash, it could be time to overpay on your mortgage.
Just be aware that while being mortgage-free is a dream for many, you likely won’t get hold of the cash you use to overpay again.
Jonathan Harris, managing director of mortgage broker Forensic Property Finance, explained to The Sun: “Don’t pay off the mortgage unless you are absolutely sure that you won’t need that money again.
“With mortgage rates close to record lows, the mortgage is one of the cheapest forms of borrowing.
“Before you pay off your mortgage either using a lump sum or monthly payments, check you’ve cleared your more expensive debt first.
“There is no point paying down a mortgage with a pay rate of 3% if you have a credit card charging 20% interest or an overdraft rate of 30%.”
Mr Harris also urged homeowners to keep some cash for a rainy day fund given the uncertain times.
For most people, enough money to cover three to six months’ of living expenses should do, he added.
Consider switching to an offset mortgage
Alternatively, if you don’t want to lose the overpayment cash forever, you may want to consider switching to an offset mortgage.
The loan keeps your mortgage debt and savings in separate pots with the same bank or building society.
The cash savings are then used to reduce – or offset – the amount of mortgage interest you’re charged.
In an offset mortgage, the savings remain yours and can be withdrawn whenever you want to. However, if you do, then it naturally no longer offsets your mortgage debt.
You should also keep in mind that you won’t earn any interest on your savings.
Ms Williams added: “Offset mortgage deals allow a borrower to link their mortgage and their savings together, reducing the interest paid on their mortgage while still maintaining access to their savings pot.
“Offsetting can therefore result in not only being able to pay off a mortgage quicker, but also reducing the total amount repaid.”
If you’re not yet on the property ladder, we explain how to find the best mortgage for you including lenders offering “no deposit” mortgages.
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