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!
6 Comments
It’s amazing how even just a little extra paid towards your mortgage can knock huge amounts off the principal. $20.00 a month is managable and saves your 2 years. That is a small investment for a huge pay off.
I don’t believe we have the option of an interest only option in Canada. The mortgage is one debt that I’m not sure when it will be paid off. Isn’t that awful? I know our mortgage is due to be renegotiated next year, I think pretty a year from now, to be honest.
It’s probably a good thing that you don’t have ‘interest only’ mortgages in Canada – at least it means that you’re currently paying something off towards your mortgage debt! Yes I think it’s amazing how such a small amount can make an impact like that when overpaying your mortgage. I’m definitely going to do this as soon as I can free up some cash.
We first wanted to make sure we had enough savings and extra before we did anything. Now that that’s in order we are working on paying down both mortgage and student loans. We thought about trying to pay them off super fast but I decided that I could make better returns in investing in stocks and now real estate. We may still try to get of the mortgage in 15 years so we don’t end up paying double or triple but not really in a hurry to finish it off at the moment. You have to find what works best for you. For now we think with the interests rates so low we need to have that money earn us more money instead of giving it to pay down mortgage.
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Sounds like a great idea! I wish I knew more about investing. Perhaps you could post some tips on how to start investing in stocks for beginners? 🙂
Good for you for putting together a plan for paying off all your debts! While you might feel that paying only the interest on your mortgage right now isn’t great – you have put together some good goals for achieving debt free-ness. 🙂 We’re on a similar timeline, we should be able to pay off our consumer debt in about four years. After that, I’m not sure if we’ll aim for investments or attacking our mortgage. Maybe we’ll do both?
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Sounds like a good idea to do both investments and pay off your mortgage too! It’s good to have goals though, I wish I’d done this sooner!