In these days and the current financial climate, interest rates are becoming very historic. Therefore, it is no doubt best to go into retirement mortgage-free. You will find below five tips to help you be mortgage-free much sooner than you had planned.
1- Pay off a lump sum
Several lenders accept that you to pay off a lump sum towards the debt every year. If you pay off more of the debt, you could be hit by a penalty, so don’t get too carried away.
Also you should check when the lender calculates the interest owing. If the calculation is annual, you should time the overpayment carefully, so it is not sitting in your mortgage account doing nothing for eleven months of the year.
2- Overpay each month
It’s often more favourable to pay off a little bit extra each month and many lenders offer such flexible facilities.
Let’s say you have a £150,000 repayment mortgage over 25 years. The normal monthly payments are £702.76. But you would reduce your mortgage term by two years and three months and save nearly £6,249 in interest if you only overpaid by £50 a month.
3- Cut the term of your loan
You might be able to pay off your mortgage quicker if you switch to a different lender. If, for example, you are paying a high rate of interest you could switch to a cheaper deal and cut the term of the loan.
Let’s say you have a £150,000 repayment mortgage at 4.99% over 25 years, with monthly repayments of £876.01. If you switch to a tracker mortgage at 2.89%, you could reduce the term to 20 years and cut your monthly payments to £823.66.
4- Rent a room
You can earn rent of up to £4,250 a year tax-free under the government’s Rent a Room scheme, if you let a furnished room or rooms in your home. You could then use the money to put towards your mortgage debt.
5- Stop smoking
Smoking 20 cigarettes a day, your “bad” habit could cost you £42 a week, and that’s £2,814 a year. Kick the habit, and you could use the savings to overpay your mortgage by £182 a month.
The result? You could shave seven years and £26,708 off a 25-year fixed-rate £150,000 repayment mortgage at 4%.
I should note that smoking is one of a hundred bad habits that could be avoided, and in this case, it is surely for a good cause.