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The average mortgage costs £45,000 in interest over 25 years. Clear it early and not only will you have peace of mind knowing you own the roof over your head, you’ll also save yourself tens of thousands of pounds in interest. Here’s how to become mortgage free.
Government figures show that the average mortgage-holder paid just over £8,000 last year in mortgage repayments. Clearing your mortgage and becoming mortgage free will mean you have a lot more money in your account every month. Plus, you’ll save yourself a small fortune in interest payments. The average mortgage debt in the UK is £123,000, according to the Council of Mortgage Lenders. With an average interest rate of 2.63% that means the average homeowner paid £3,154 interest on their mortgage last year.
That means that making the effort to repay your mortgage early will save you thousands of pounds. Here are three steps to become mortgage free.
Shopping around for a new mortgage deal when your current deal ends will mean you are always on the best mortgage for you. You can start the remortgage process up to 6 months before your current mortgage deal ends.
Bear in mind that if you remortgage before your current deal ends, you may need a pay an early repayment charge.
Another benefit of remortgaging when your current deal ends is because if your house has increased in value since you last took out a mortgage, and if you have a repayment mortgage, your loan-to-value (LTV) (the proportion of your home that’s borrowed) will be lower.
A lower LTV usually gives you access to better mortgage deals with lower interest rates. If this is the case, this can help you clear your debt faster and become mortgage free.
The best mortgage depends on your personal circumstances. The award-winning expert advisers at Mortgage Advice Bureau will find the right mortgage for you.
Get fee-free remortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
The absolute key to paying off your home loan early so you can live mortgage free is to overpay your mortgage.
There are two ways you can overpay:
Let’s look at what an overpayment would do to a £150,000 mortgage with a 25-year term at 2.5%. A £20,000 overpayment would save you £15,311 in interest. You would also clear your debt four years and four months earlier. Alternatively, paying an extra £150 a month would save you £13,000 in interest. You would pay off your debt almost six years early too.
But before you start throwing money at your mortgage provider check your paperwork. Most mortgage deals have a limit on how much you can overpay by. There may also be fees associated with overpayments.
Also, make sure you can afford your overpayments. You don’t want to end up with all your savings tied up in your house. Read our guide Should I pay off my mortgage? which explores the pros and cons of using your savings to pay your mortgage off in full.
If you don’t want to lock your savings away in your house, an alternative option is to get an offset mortgage. You put your savings into an account tied to your mortgage. Then the balance of the account is deducted from your mortgage when interest is calculated. Be aware that you won’t receive any interest on your savings.
For example, if you have a £200,000 mortgage and £25,000 in a linked savings account, you’ll only pay mortgage interest on £175,000. On a 2.5% mortgage interest rate you’d save £19,000 in interest. You would also repay your mortgage and become mortgage free two years early. So, well worth considering!
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
HomeOwners Alliance Ltd is an Introducer Appointed Representative of Mortgage Advice Bureau (Derby) Limited which is authorised and regulated by the Financial Conduct Authority.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
