Friday, 1 September 2017
If you ask someone what’s the biggest debt they have, or want to pay off, most will say it’s their mortgage. It’s something that looms over us for decades. Paying it off early would be amazing, but many feel that being mortgage free quicker is out of their grasp. However, paying it off sooner is much easier than you may think! There are lots of steps you can take towards being mortgage free before your full term, and we’ve gathered a few of them together for you.
There are a few adjustments that can be made to your mortgage and the payments that are often over looked. We’ve gathered a few for you to consider.
Most people pay their mortgage monthly, however a simple way to clear your mortgage quicker is to pay bi weekly. Making a payment every 2 weeks, instead of every month, means that at the end of the year you will have made the equivalent of 13 monthly payments instead of 12. On a 25 year mortgage, you could pay it off 2 years early by paying bi weekly.
If you can’t pay bi weekly, you can instead divide your monthly payment by 12, then add that amount on to each month’s payment. For example if your monthly payment is £500, 1/12 is £41.66. Change your monthly payment to £541.66 and you’ll end up with the same result.
Any extra money that comes into your account, through whatever means, whether it is a bonus or a tax refund, can be put towards your mortgage. Check with your mortgage provider if there is a cap on how much extra you are allowed to repay each year. Most fixed term mortgages only allow you to pay off up to an extra 10% each year. If this is a case, an easy way around it is setting up a savings account and putting any extra money there. Once your fixed term ends, put all of the money in your savings towards the mortgage.
If you can reduce your term, it can save you a large amount in interest. Reducing your term will increase your monthly payments, but if you can manage it the benefits are massive, and you’ll be mortgage free much quicker.?For example, a mortgage of £100,000 with an interest rate of 4% over 25 years is £527.84 pcm. This would total £58,352 in interest paid over the 25 years. By reducing the term to 15 years, you would pay £739.69 pcm, but pay £33,144.20 in interest. That’s a massive saving of £25,207.80, and you’ll be mortgage free 10 years sooner. (source Savills, spf.co.uk)???
Getting smart with your spending will mean you’ll have more money in the bank at the end of the month. This is extra money you wouldn’t normally have, so these extra funds can safely be put towards your payments using the tips above. Saving money is easier said than done, so we’ve gathered a few useful tips to help.
From water and electricity, to insurance, it’s quick and easy to see if you can reduce the amount you’re paying. Using a price comparison site like www.moneysupermarket.com can show you if you’re paying the best price on the market, and if not, call your provider. Ask them if they can match or beat the cheaper quote you’ve found. Most companies will match, and if not, you can switch.
Are you actually using all the things you’re paying for on your phone plan? Most people are paying for way more minutes or data than they’re actually using. Your phone will tell you how much you’ve used over a certain period of time. If you’re consistently coming in way under what you’re paying for, it’s time to switch to a cheaper plan! You could save yourself a lot of money each month, and that quickly adds up. For most providers, it’s easy to switch your plan online.
Consider switching to more budget friendly supermarkets for your food shop, such as Lidl or Aldi. If one isn’t local to you, or you can’t switch, instead try doing your food shop online. This way you can stick to your shopping list without being tempted to buy anything extra as you walk around the shop.
If you have an unused spare room in your home, renting it out is a great way to generate extra cash. You could make up to £7,500 a year, tax-free, under the Government's rent a room scheme. This is a really nice chunk of money to put towards your mortgage! Alternatively, if you don’t want a permanent lodger, you could advertise your room on AirBnB. Lodgers send you a request to stay in your room, with information about how long they hope to stay and so on, then you can choose to accept or decline them. Payments are made in advance, so you know you won’t be out of pocket.
If you live in an ideal location, like near a station or town centre, and you don’t use your driveway or garage, you could make extra cash from renting it out. Lots of commuters and students are looking for better options than paying to park at over priced car parks. Try advertising your parking space on www.justpark.com or yourparkingspace.co.uk for an easy way to earn extra money towards your mortgage payments.
Using these tips to your advantage will be a sure fire way to help cut down your term. Even the smallest change is better than nothing, and brings you closer to the ultimate end goal of being mortgage free, faster.