Have you ever wondered about how to pay off your mortgage faster? Our own mortgage situation is not exactly ideal. At the moment, we’re on an interest only mortgage to try to keep the costs down whilst we’re paying off debts.
It’s not a great situation to be in because we’re not actually paying anything off the capital loan (£132K). It’s just the interest that gets paid off each month.
The term of the mortgage is 25 years and this term won’t be reduced until we start paying off the capital. The good thing is that we’re not in negative equity – we’re just about breaking even on the house instead. So if we sold up we probably wouldn’t lose any money. That’s positive I guess!
Our priority now is paying down the consumer debt on our debt ladder. Once that’s out of the way in 3 or 4 years time (I’m being ambitious here I’m sure), then we’re going to tackle the mortgage.
Even small overpayments could help you pay off your mortgage faster!
I found this mortgage overpayment calculator on Money Saving Expert which calculates how quickly you can pay your mortgage off if you make overpayments. You just put in your mortgage details – the loan amount, the interest rate or monthly payment and the term of the loan. Note – the calculator works out the currency in GBP but you can easily convert to USD if you wanted to try this tool out.
Because we’re squirreling away every penny towards our debt at the moment we can’t afford to overpay anything right now. Once we’re debt free (hopefully by the time I’m 36!), we will transfer to a repayment mortgage which will cost an extra £250 to £300 per month. At least then we will be paying something off the capital!
So what about reducing the term of the mortgage?
Our mortgage lender offers a penalty free overpayment facility – e.g. we won’t get charged for making overpayments if we wish to. We’re allowed to make one off overpayments or regular monthly overpayments. Not all mortgage lenders offer this facility and some lenders allow this option after an initial tie-in period. We were tied in for 5 years at a high interest rate and a sack load of penalties went with it. We now have slightly more options as last month the tie-in period ended! Yippee!
So in a few years time, if we were able to pay an extra £100 on top of our monthly repayment fee, according to this mortgage overpayment calculator, we could clear our mortgage in 20 years instead of 25 years. Incredibly, even if we just overpaid by £20 per month, we could shave around 2 years off the term of the mortgage!
Well that’s surely worth doing. We don’t want to be paying off our mortgage when we reach retirement age so overpaying to reduce the length of the mortgage sounds good to me!
I’m hoping that in a few years time, the hubby and I will both be earning more money like we did a few years back. If that is the case, I’m wondering if we could pay up to £400 in overpayments as well as afford the minimum repayment monthly cost. If we could, the mortgage would be cleared in just 12 years. That means I’ll be 48 years old at that point (gulp!). But not a bad age to become mortgage free – and be debt free, I think? 🙂
I guess we never know how things are going to pan out. By then, perhaps we’ll be earning a lot more money but decide to buy a more expensive house. I hope not though in a way as I don’t want us to get suckered into borrowing more money than we need to again!