12 Ways to Pay Off Your Mortgage Faster

Most of you who have a mortgage probably dream about how great it would be to pay it off. You think about the relief you would feel having that heavy debt burden removed. You also think about the security. No matter what happens, you’ll always have a roof over your head. No-one can take your home away from you.

How do you go about paying off your mortgage quicker?

1. Shorten Your Mortgage Term

Let’s say you have a £300k mortgage over 25 years @ 6% interest.

You would pay £1,930 mortgage per month and, over the lifetime of the mortgage term, you would pay £279,990 in interest.

If you shortened the mortgage term to 20 years, you would pay £2,150 per month. However, the interest you pay would drop to £215,920. This is a saving of £64,070!

You would need to speak to your Bank Manager to discuss shortening the mortgage term. Also, before you do this make sure you can afford the higher payment over the long term.

2. Overpay Your Mortgage

You can overpay your mortgage each month or pay a lump sum into the mortgage. This will reduce your outstanding mortgage balance and it also reduces the interest you pay.

However, before you do, check the terms and conditions of your mortgage with your lender to determine if there is an early repayment charge (ERC).

If you are on a fixed rate term most lenders only allow you to overpay 10% per month of the monthly mortgage amount. Above 10%, there will probably be an ERC.

If you are on a standard variable rate, there are usually no restrictions on overpayments.

Using the example above, you have a £300k mortgage over 25 years @ 6% interest. Your mortgage is £1,930 a month and you would pay £279,990 in interest.

If you pay:

• a £10k lump sum, you would clear the mortgage 1 year and 9 months early. You would also save £32,180 in interest.
• £200 extra per month, you would clear the mortgage 4 years and 8 months earlier. You would also save a whopping £60,340 a month. That’s just from an extra £200/month!

If you combine the £10k lump sum and the £200 monthly overpayment:

• you would clear the mortgage 5 years and 11 months early. You would also save £82,720 in interest.

However, before you start putting money directly into the house, read How Paying Off Your Mortgage Could Give You a Financial Heart Attack.

Don’t put every penny you have into your home. You always need liquidity! At a minimum, you need an emergency fund which will cover 3-6 months of expenses.

3. Remortgage

Speak to your current lender about remortgaging. You could potentially get a lower interest rate which will reduce your monthly mortgage repayments.

You could also speak to a mortgage broker who will be able to advise whether other lenders can offer you a better interest rate.

If, for example, you initially got a 90% Loan to Value (LTV) mortgage for a £400k home. So, you would have put £10k down and got a £390k mortgage over 25 years @ 5% fixed for 5 years. This would mean you would be repaying £2,280 per month.

After 5 years, your mortgage outstanding would be £345k. Given you were on a 5-year fixed rate, it’s now time to remortgage.

You decide to get your home valued and find it has increased in value from £400k to £460k. You are delighted it has gone up in value. Your DIY renovations have paid off.

Your home now has a 75% loan to value (LTV).

You call your bank and they tell you there are now a whole host of more favourable interest rates available to you given the better loan to value.

You opt for a 4% interest rate, fixed for 5 years. Your payment drops from £2,280 to £2,090 per month, saving you £190 per month.

To ensure you maintain liquidity, you decide to take the £190 you had been paying into the mortgage and pay it into a stocks and shares ISA. Assuming a 7% return, the £190 grows to £13.5k after 5 years of investment.

At this point, you can decide to take some of the money or all of the money from the ISA, put a lump sum into the mortgage and continue investing.

4. Mortgage Product Fees

If your mortgage product has a fee associated with it, pay it upfront rather than adding it to the mortgage. Alternatively, find a competitive product with no fees at all!

5. Make Bi-Weekly Payments

Making bi-weekly payments can help you pay off your mortgage faster. If you do this, the net result is that you will have made 13 payments annually instead of 12.

6. Rent a Room Scheme

If you have a spare room, you could rent it out under the Rent a Room Scheme. This is where you can earn £625 per month tax-free. This is cut in half if you share the income with your partner or someone else.

Let’s imagine you aren’t sharing the money with anyone and you get the £625/month tax-free.

You have £275k left on your mortgage at 5%. The remaining term is 16 years. Your monthly payment is £2,080 per month.

Invest the Rental Income

You could invest the £625/month in a stocks and shares ISA at a 7% return.

After 11 years, you would have £122,819. At year 11, your outstanding mortgage (assuming a 5% interest rate) would be £110k.

At this point, you could simply withdraw the money from your ISA tax-free and pay off the mortgage 5 years earlier. You would still have nearly £13k in the ISA which you could continue to build on and invest using the money you have now freed up given you are mortgage free.

Overpay The Mortgage

Alternatively, you could go back to point 2 above, take some or all of the money out of the ISA and overpay the mortgage.

7. Get Your Stuff Out Of Storage

Are you paying for furniture and other household items to be held in storage? This is a complete waste of money.

Sell the items you have in storage, take the money and pay down the mortgage with it.

Take the money you have been spending on storing the items and use that to pay down the mortgage.

Here are the average self-storage costs in the UK.

Let’s say you have a £350k mortgage @ 6% interest with 15 years left on the mortgage. Your mortgage is £ 2,950 per month.

You sell the furniture in storage and get £2k for it.

You give notice to the storage company that you no longer need the unit. Given it was a 75 sq ft (almost 7 sqm) unit, you are saving £157 per month.

You pay the £2k as a lump sum and £157 per month into the mortgage.

As well as freeing you of clutter, getting rid of the furniture and storage costs has refunded you enough money to clear your mortgage 1 year and 3 months early and saved you £18,460 in interest.

8. Sell Stuff You Don’t Need

Your children are grown up but you still have children’s toys in the house. Unless you want to keep some of them for sentimental value then you could sell them and take the money and pay down the mortgage with it.

The same applies to clothes you don’t wear anymore, books you’ve read but don’t want to keep etc. There are multiple apps you could use, like eBay, to sell stuff you don’t need.

You can use this money to pay down the mortgage. Note that if you earn more than £1,000 from selling items online you need to declare it in your tax return to HMRC.

9. Use a Pay Rise Or Bonus

If you get a pay rise or bonus you could use that money to pay off the mortgage. Rather than going out and blowing the money on a brand-new car, or a holiday you could buy back years of your life by using the money to clear the mortgage earlier.

10. Get an Offset Mortgage

With an offset mortgage, you pay money into an offset savings account. The money in this account offsets the interest on the mortgage that you must pay.

You can get a fixed or variable rate offset mortgage.

For example:

• You have £100k left to pay on your offset mortgage.
• There is £20k in your offset savings account.
• That means you only pay interest on £80k. 

You can make overpayments and pay off the mortgage earlier if you are not on a fixed rate offset mortgage.

Cons of an Offset Mortgage

The interest rate may be higher on the offset mortgage than on a standard one. 

You don’t earn interest on the savings in the offset savings account.

You may earn more interest by putting your savings into a standard savings account if the interest on this is higher than the mortgage rate for a standard mortgage.

Some lenders may place a limit on how much you can save and keep in the offset savings account.

11. Cut Your Expenses

Go through your expenses. You are probably haemorrhaging money somewhere e.g., unused gym membership, subscriptions to magazines you barely read etc. 

Cut unnecessary expenses and take that money to pay off your mortgage. Per the examples above, it may take years off the mortgage and save you thousands in interest.

12. Buy to Let Mortgage

You could get consent to let from your lender to rent out your home in its entirety. Then your tenants will pay off your mortgage.

However, you will need somewhere else to live!

Couples who are dating and each have their own property may move into one and rent out the other.

Alternatively, you may move in with your friends or even home with your parents temporarily to help you save money but keep your house as an appreciating (usually) asset with someone else paying off the mortgage debt.

Summary

There are multiple ways you can pay off your mortgage. Choose the one that’s best for you.

However, at all times ensure you have an emergency fund to cover you if you lose your job or have a medical emergency.

Once your house is paid off you can join the 28% of the UK population who are homeowners with no outstanding mortgage.

Thanks for reading!

Have you paid off your home? Are you in the process of clearing your mortgage early? Share your comments or questions in the Comments section below.

DISCLAIMER: Inquisitive Finance operates on principles of exchange of knowledge, ideas and opinions and learning in the community. Your decisions are entirely your own responsibility, and I am in no way responsible for your actions. I am not a financial advisor. Whilst I strive to provide accurate and up-to-date information, I make no warranties or representations as to the accuracy or completeness of this information. Use common sense, do due diligence and where necessary, use the services of a licensed financial advisor, before making any financial decision and/or transaction.