What would you do if your mortgage was paid off? Would you still carry on working, would you go part time at work, or would you just like the peace of mind it could give you?
The truth is if we all paid off our mortgage early it would give us choices. We would be safe in the knowledge that our house is safe no matter what happens with our income.
Let me run a few numbers by you.
Say you get a mortgage of £200,000 at 6% the table below shows your monthly repayments over 8,10, 15, 20, 25 and 30 years:
|
8 years |
10 years |
15 years |
20 years |
25 years |
30 years |
|
£2,628 |
£2,200 p/m |
£1,687 p/m |
£1,432 p/m |
£1,288 p/m |
£1,199 |
Some people might look at this table and think it would be wise to go for the 20 or 25 year mortgage. I never understood that, who decided 25 years would be a good amount of years to tie yourself to a mortgage, that’s right, it was the banks. Look at the table below and look at how much you pay over 8, 10, 15, 20, 25 and 30 years.
|
8 years |
10 years |
15 years |
20 years |
25 years |
30 years |
|
£252,315 |
£266,500 |
£303,800 |
£343,900 |
£386,600 |
£431,700 |
Look at the table above and look at the difference between an 8 year mortgage and a 30 year mortgage. The bank gains an extra £180,000 iby lending you over 30 years instead of 8 years.
Now, you might be saying that the payments for an 8 year mortgage are double that of a 25 year, the average length, mortgage.
Here are 8 ways to pay your mortgage in 8 years time
- Change your mortgage provider; Don’t just stay with your current lender just because you have been with them for years. Shop around and get the best rates. If you really feel loyal to your current bank, call them and advise them you are thinking of moving and would they consider matching the best deal you have found. For a £200,000 mortgage if you get a 1.0% better rate you could save £100 per month.
Saving per month: £100
- Change your telecoms provider. I actually saved £70 per month on a broadband, telephone and TV package. Separately I was paying £100 per month. When someone advised me of various deals going on I was shocked, and it was not an introductory offer.
Saving per month: £70 - Give up smoking: If you are a 20 a day person there is no better way to give up than thinking you can be mortgage free in 8 years time. You can save £150 per month.
Saving per month: £150 - Stop paying your pension contributions for 8 years; that might sound like a crazy idea, but believe me it’s not and it can literally save you tens of thousands of pounds in the future. Once your mortgage is paid off you can double your payments to catch up if your really want to. The average person pays about 6% of their salary to their company pension which is a lot. Yes the company might pay you the equivalent of what you put in but it’s still worth stopping it for a while.
Saving per month £200 - £500 - Take a packed lunch to work: If you spend £8 - £12 a day on coffee and sandwiches you are throwing your money down the drain.
Saving per month £150 - £200 - Change your car: It’s amazing how much can be saved from changing your car from an SUV to a much more economical, but no less stylish, car. If you get your car as part of a deal from work why not ask them to give you an extra £200 per month allowance if you agree to trade the costly diesel guzzling SUV.
Saving per month £200 - £300 - Take 1 holiday per year instead of two . It might be a way of relaxing for you and your family but can you justify £3000, on average, for each holiday. Think about it, you could effectively stop work or go part time if your mortgage of £2,600 per month is paid off.
Saving per month £250 - Use your skills: If you have a skill someone is willing to pay for your knowledge. Or simply getting another few hours a week can get you an extra £100 - £200 per month.
Saving per month £200
All of the above totals £1,320 - £1,770 per month. This will obviously be lower depending on your income, the size of your mortgage and what expenses you have. However the figures are amazing.
What are you waiting for, take the mortgage challenge and pay off your mortgage in 8 years or less.
If you have a ‘pay off your mortgage early’ story why not share it with the other readers.
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September 14th, 2007 at 2:32 pm
Interesting article.
But unfortunately I don’t don’t smoke, have a pension policy or have expenses on my car
September 15th, 2007 at 4:50 am
Saving is an amazing wealth builder. But why would you invest the savings at 6%? Also, here in America we get a 25%+ tax return for interest payments, but nothing for principle payments. Finally, assuming property values increase, the less equity you own, the greater the return on your investment. If I have paid off 100% of a property and it goes up 10%, I make 10%. If I have paid off only 10% and the property goes up 10%, I make 100%. Leverage in real estate is why you can make so much.
September 15th, 2007 at 7:50 am
Hi PropertyGuy - these are only a few ways we can save money to pay off the mortgage. Thanks for visiting
hi Random Yank - paying off the mortgage is not the same as wealth building. You are totally correct in leveraging, but this is not what we are talking about, I’ll need to writ another post on leveraging.
September 16th, 2007 at 4:54 pm
A very eye-opening post. Having just taken on £140,000 as a first time buyer, I now see that every second of overtime is going to be crucial. Are there any penalties with regards to credit rating for moving mortgage or credit card provider?
Other awesome money saving tips available from http://www.moneysavingexpert.com (Martin Lewis)
September 18th, 2007 at 11:34 pm
While I personally agree that the security that owning your own home outright gives is worth more than the financial benefits of other options. This article misses some sound financial advice.
Having lived in America for the last 6 years where 30 year fixed rate mortgages are the norm, and 2-3 years ago you could lock in a rate of 5.5% for the whole term. Then add the 25% tax rebate on mortgage interest, that brings the rate down to just over 4%.
If I am only paying a little over 4% for borrowing money and it is fixed for 30 years, why would anyone pay off the mortgage early when following your above money saving tips and investing the savings would totally outstrip any savings in the mortgage.
Also stopping the pension plan is a really bad idea. The tax advantages of a pension plan (especially if a company has any sort of contribution matching) would also far outweigh any savings in the mortgage payments.
Why save 180,000 in mortgage interest when I can make 250,000+ on relatively safe investments over the 30 years?
It’s a really really bad idea now, but an extra £1,320 - £1,770 on a second mortgage 10 years ago would have outstripped virtually all other investments hands down, so there are times when increasing your mortgage is actually a fantastic idea.
This is coming from someone who has made about as much from property investments over the last 10 years as from my job, but I must qualify that by saying that I did follow your advice and pay off my mortgage first, because as I stated at the start, the security and peace of mind is worth more to me than the financial rewards.
September 20th, 2007 at 4:52 am
This list could be longer but it is a very good start in finding ways to pay the mortgage.
June 6th, 2008 at 9:55 am
my feeling is this, i agree that owning your home outright does give you security in the knowledge that no matter what happens to your income your home will always be your home, however as negative as it sounds we could all be hit by a bus tomorrow and so i would like to think that if i do get hit by a bus or suddenly die i have saved myself 20k or more and the insurance money i pay every month was worth it!!!