Mortgages are the one financial service you spend years trying to get, but then want to be rid of as soon as you can.
For most of us, a mortgage is the key to getting on and climbing up the property ladder, but they can also be your biggest monthly expense. With recent rate volatility in mind, it’s hardly surprising that becoming mortgage-free often becomes the next financial goal.
David Hollingworth, of mortgage broker L&C, says: “Having a mortgage is a necessary part of making the dream of home ownership become a reality for most people, but from then on, the focus will usually shift to being rid of what will generally be the biggest debt we’ll ever have.”
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Overpaying your mortgage is one way to do this, but if you’re faced with the prospect of trying to chip away at a six or even seven-figure sum it can be rather daunting. However, there are several tactics you can adopt that will see you pay little and often, which can shrink your borrowing without dramatically affecting your budget.
Here Telegraph Money, shares five tips to help pay your mortgage off early, and potentially save thousands.
The “round up” idea has been popularised by the many banks that offer the service to help boost savings – when you make a purchase, say, for £3.50, the money that leaves your current account will be rounded up to the nearest pound and the remainder sent to a savings pot – in this case, 50p.
The same theory can be applied to mortgage overpayments.
“If your mortgage payment is £842, round it up to £850 or £900,” suggests Ying Tan, chief executive at mortgage broker Habito. “The extra goes straight towards your remaining balance.”
Rounding up by just £50 a month – an amount you might not miss from your bank balance – on a £200,000 mortgage over 25 years could knock one year and 11 months off your term and save over £13,000 in interest, he adds.
There is also merit in keeping this simple, and sticking to paying a little bit extra each month (whether that’s £50, £100, or more), as this can be a great way to chip away at your mortgage over time.
Mr Tan says: “On a £200,000 mortgage over 25 years at 5pc, overpaying £100 a month could save around £24,000 in interest and shave off over three years from your term.”
You might want to think about setting up regular overpayments at those occasions where you feel able to loosen the financial purse strings – such as getting a promotion or pay increase at work.
