Mortgage free: The ‘absolute key’ to paying off your loan early and saving thousands
This man intends to live mortgage free in a refurbished caravan
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Last year alone, the average homeowner paid £3,154 in interest on their mortgage according to estimates from the HomeOwners Alliance – imagine if there was a way to repay your mortgage early and save thousands of pounds in the process. And it’s not just about making overpayments, savvy Britons are taking simple steps to pay as little interest on their homes as possible.
According to the Council of Mortgage Lenders, the average mortgage debt in the UK is £123,000, which only looks set to soar as property prices rise.
However, repaying a mortgage for 25 years is not set in stone and one way that more and more people are paying less interest is by making overpayments on their loan every year.
It’s an effective method – 39-year-old Becky Derbyshire told Express.co.uk that her and her husband are mortgage-free – and it took them less than ten years.
The couple completely paid off their £120k mortgage earlier this year and Becky says she wishes she’d started earlier after feeling ‘a huge sense of relief’.
However, as well as making overpayments every year, a few other simple steps could also help people become mortgage free.
READ MORE: 38-year-old woman who became mortgage-free shares how you could be too
How can I become mortgage-free?
Lower your interest rate: Remortgage onto a lower interest rate whenever you can – the process takes a couple of months so write it down.
Overpay your mortgage: Most lenders let homeowners overpay by 10 percent every year, but please check first. The HomeOwners Alliance says that even overpaying by as little as £60 per month can knock three years off the loan.
Offset the mortgage: It’s possible to have a savings account tied to the mortgage. It means the balance of the account is deducted from the mortgage when interest is calculated.
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On its website the HomeOwners Alliance said: “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 percent mortgage interest rate you’d save £19,000 in interest. You would also repay your mortgage two years early. So well worth considering!”
Some banks and mortgage lenders have handy overpayment calculators that could help people get started, which is how Ms Derbyshire began her debt free journey.
She explained: “I set up a savings account just for this purpose and we lived off my husband’s wage – putting every spare bit of cash away.
“At the time Jayson was on a modest salary but we didn’t feel like we were missing out on anything as we just got used to it. We started to live within our means.”
It was worth knuckling down in their thirties, she said, because now they don’t have to worry about such a big monthly payment.
Becky said: “Of course we still have other bills to pay but it takes the pressure off. With so many people losing their jobs at the moment, it’s a relief to not have the burden of a mortgage.”
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Although becoming mortgage-free isn’t easy, it is possible, and Becky shared some tips for other looking to do the same:
- People are never too old to start overpaying on your mortgage, start now
- Put whatever spare money one has – whether it’s just £10 or £50 a month into a separate savings account for this purpose (it won’t be missed if it’s not there)
- After six months use the money to pay off a lump sum from one’s mortgage
- Check online to see if a person’s bank has a mortgage overpayment calculator
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