For many, paying off your mortgage early is the dream: monthly outgoings will be dramatically reduced, so if you hate your boss you can tell them where to go and not worry as much about keeping a roof over your head.
An added recent advantage is that you aren’t as viscerally affected by changing interest rates and rising inflation, ideally ridding you off debt.
Jinesh Vohra, 38, managed to pay off his mortgage in four years, primarily by being in the fortunate position of having a high salary with no children.
The former Goldman Sachs worker, who earned £90,000 a year, bought his five bedroom detached property in Watford in 2012 for £440,000 at the tender age of 28.
He and his wife, an accountant, had a £110,000 deposit, leaving them to pay £330,000.
Their initial mortgage had a rate of 1.5 per cent for a two year variable offset mortgage with Barclays, a type of mortgage that is linked to one of your savings accounts.
The money in your savings isn’t used to pay off your mortgage but is used as your deposit – if you’re able to put more in, you pay less interest as your loan goes down. This type of mortgage suits people who earn large bonuses.
With a mortgage of £330,000 and £30,000 in savings, you would only pay interest on £300,000 of your mortgage, instead of the full £330,000.
Jinesh said: “I remember when we got a mortgage, I was obsessed with buying the property outright. I realised how much of my monthly payments were just interest and thought it would be a good idea to pay it off as soon as possible.
“We used overpayment calculators to see how quickly we could get rid of the mortgage. I wanted to do it in five years so we started to make overpayments and tackled it head on.”
Initially, the couples monthly payments were £1,500 but they wanted this to be flexible so moved from an offset mortgage to a two year variable plan that allowed them to make unlimited overpayments.
They made payments as and when they could in large sums of thousands, sometimes tens of thousands. On average, they paid around £66,000 a year towards their mortgage.
By doing so, they managed to pay the whole mortgage off in four years.
“We were quite aggressive with our saving. We had a good income and don’t spend a lot on things. The only thing we pay for is nice holidays, that is our splurge. All our extra money would go to the mortgage.
“There were definitely sacrifices. We wanted a new kitchen and my wife wanted to replace the windows but I said no, we should pay off the mortgage first.”
After paying off his mortgage, Jinesh quit his job at the Wall Street bank and started his own company, Sprive, that helps other people pay off their mortgages and get out of debt.
Users link their bank account and set their monthly limit and their mortgage freedom goal. The app will then set money aside based on someone’s spending to help them overpay their mortgage where possible. As spending varies, the amount put aside will change, something that is beneficial in the cost of living crisis.
It also shows users how many years it will take for them to pay off their mortgage at that time and scans the markets for better deals constantly so users can switch if they are able and willing.
App users can also boost their payments through Shop at Sprive. It has partnered with a number of stores, that essentially offer ‘cashback’ but as payments towards a mortgage. For example, if you do a £200 shop at Marks & Spencer, with a 5 per cent ‘cashback’, £10 will go directly towards your mortgage. It cannot be taken as cash.
For those who do want to overpay on their mortgage, it can simply be done by phoning up your bank and asking to do so. Usually, all it will take is a ten minute conversation to complete.
Most lenders will impose a ten per cent maximum repayment allowance for the year.
However, there are some mortgages that are better than others for those who want to overpay including variable and offset mortgages.
If you’re on a standard variable rate, you can often overpay as much as you want. The downside is these deals are expensive. An offset mortgage can also help people save. With the savings balance deducted off the total mortgage debt, interest is only charged on the remaining debt meaning borrowers may be able to pay the mortgage back faster.
While Jinesh was committed, it will likely be harder for the average person to pay off their mortgage in such a short time frame given rising mortgage rates, which hit nearly 7 per cent last October, as well as high inflation which currently sits at 10.1 per cent, putting pressure on household finances, and that we don’t all earn the salary of a Goldman Sachs employee. But there are still ways to make a bigger dent in your mortgage, as we explain below.
Things to consider before overpaying your mortgage
Overpaying your mortgage means you pay less interest in the future and pay off your mortgage sooner. Doing this when interest rates are low means you’ll have a smaller mortgage too if there are higher interest rates in the future. However, depending on your circumstances, there are some things you’ll need to think about.
1. Will you be charged for overpaying your mortgage? Check your mortgage deal to get a picture of how charges can cut into any savings that result from overpaying your mortgage. Many lenders charge people for paying their mortgage off early or making a monthly payment which goes over their agreed monthly limit. However, most will let you overpay up to 10 per cent a year without penalties.
2. When should you over pay? If your interest is charged daily, the sooner you make the overpayment the better. However, if it’s charged annually, you will need to time to make your overpayment so it counts towards the calculation of the interest for the year.
3. Do you have more expensive debts? If you have debts with credit cards or a loan, for example, that may take some time to pay off, work out if you’ll be paying a higher interest rate if you only pay the minimum. Always pay off more expensive debts before thinking about reducing your mortgage.
‘We’re trying to overpay but the cost of living is making it harder’
Michael Beech, 43, and Jordan Denis, 29, are two people trying to overpay on their mortgage to rid themselves of debt but are finding it difficult with the cost of living crisis.
The couple who both work in the NHS bought a three-bedroom semi-detached house in Cannock last year for £205,000 on a two year fixed mortgage with a rate of 1.73 per cent with Halifax.
They paid a 15 per cent deposit of £30,750 but soon decided they want to work to pay off their mortgage as quickly as possible.
“We pay a fixed rate of £714 a month but I pay at least £70 a month over that, as we have a deal where you can overpay by 10 per cent,” Michael says.
“The goal is to become mortgage free and faster by whatever means we can. We want to do it sooner rather than later to pay less interest.”
However, the growing cost of things has left the couple having to be careful with how much they overpay.
Jordan said he is able to save less money then previously. “Times like over Christmas, when we have less in the bank, the app reduces how much you overpay by.”