Who doesn’t have a mortgage? It seems that most of the adult population of Britain has one, if they don’t, they probably once had one or are trying to get one.
A mortgage helps people become homeowners. First time buyers get their feet firmly on the property ladder and seasoned homeowners use them to move from one place to another.
Others use them to do works on their property like build extensions, lend to family and even go on holidays.
It would appear that, for a lot of people, a mortgage means freedom.
Unfortunately, all is not what its seems, the one thing a mortgage is not, is freedom.
It could be argued that a mortgage is a noose around a person’s neck. An anchor that keeps them trapped in a perpetuating cycle of having to work to keep a roof over their heads.
That can be a life which is often extremely hard and testing.
A mortgage is the biggest debt most people will ever have. It is a debt that they will pay off over a very long extended period of time.
The average time span of a mortgage in the UK is 25 years. The amount of people taking out mortgages of upto 35 years in length had doubled between 2007 and 2017.
The biggest problem with a mortgage is the interest you pay for the privilege of borrowing the money in the first place. With repayments lasting over many years, you actually pay back a lot more than you borrowed. Tens of thousands more.
In some cases, the amount you borrow to buy a house is far more than the value of the house you intend to buy. Even if the mortgage is for 75% of the house value, it can end up costing you a lot more than the price of the house.
Unless that house value increases exponentially over the time period, it is possible that you actually pay back more than you make from the property.
And contrary to belief, not all property value goes up, if property prices do increase, they don’t all double or triple in price.
Become Interested In How Mortgage Interest Works
The interest is the charge for borrowing the money.
Capital is the repayment of the amount actually borrowed.
The main issue with a mortgage is that very few people actually consider the interest when talking about the relationship between a mortgage and the house price.
Often I hear people discussing their mortgages, saying how much they borrowed, how much the house was when they bought it and how much it is worth now. At a push they may say how much they have left to pay off their mortgage.
They will discuss how much profit they have made giving very little thought to the amount of interest they have paid and will pay over the mortgage term.
For example: Let’s say a house bought for £115,000 13 years ago is now valued at £125,000. That is an increase in value of £10,000. But what about the interest which is paid over that time?
If the mortgage repayment was £420 each month for example, they would have paid back £65,520. Most of that would be interest. When a mortgage is new the interest payment is always greater than the capital that is paid back.
But let’s assume that over the 13 years the interest was just a uniformal monthly amount of £100. (I know it doesn’t work like that but bear with me) Over that 13 year period the homeowner has paid £15,600 in interest.
The homeowner has paid £5,600 more in interest than the value of the house has increased.
I can tell you now that the figure would in fact be a lot more.
I often wonder if people realise how much they are paying back. I am sure they think that if they borrowed – as an example – £150,000 with an interest rate of 6%, they will pay back just £9,000 in interest charges – after all 150,000 x 6% = 9,000.
But, here is the real kicker… over a 25 year period, paying back 6% on a £150,000 mortgage will have you paying back somewhere like £139,950 in interest. That is without any set up fees and charges.
The £150,000 you thought you were paying back is now nearly £289,950!
Basically you are buying the house twice!
That is £139,950 of your own hard earned money, handed over to a bank just so that you can live in a specific house.
What if the house you bought, had only gone up in value by 50%? Chances are you would have paid out a lot of money just to lose money in the long run.
More importantly… what could you have done with that £139,950?
How Mortgages Use Compound Interest Against You
Nobel prize winning physicist, Albert Einstein said….
If you have savings, then compound interest works in your favour because it pays interest on the interest earned.
However, if you have borrowings such as a loan or a mortgage then compound interest works against you.
Einstein believed that compound interest is man’s greatest invention. It can have a powerful effect on a person’s savings. He is credited with working out the ‘rule of 72’, which determines how long it takes to double your money at any given rate.
If you invest £1,000 at an interest rate of 6% it will take 12 years to double it to £2,000.
How do we determine that?
72 ÷ 6 = 12.
The maths is simple.
At an interest rate of 8%, it would take 9 years to double your money. (72 ÷ 8 = 9), and 6 years at an interest rate of 12% (72 ÷ 12 = 6), and so on and so on.
Imagine doubling up £10,000 or £20,000? And everytime your money doubles so does the amount to be double. You can really grow your money fast with compound interest.
It is great for you and your savings, but not so great for you when used on a loan.
Compound interest can mean that you could almost double your loan as we saw earlier using the £150,000 mortgage example. This is why banks and building societies are so very happy to give them out.
(Pic Source: How To Pay Off Your Mortgage In 2 Years BBC Books)
To really appreciate how compound interest works on a mortgage, look above at the totals for the first 5 years of a £150,000 mortgage. After 5 years you have paid £15,412 off the mortgage itself but also paid a whopping £43,258 in interest.
As mentioned earlier, over the full term of 25 years, a mortgage of £150,000 will have you paying the bank back £289,950. You have handed over £139,950 of your own money just so that you could borrow £150,000.
With the average UK wage between £17,271 – £35,771 the £139,950 interest total is the equivalent of working between 4 and 8 years just to hand money over to the bank.
Who really wants to give up their precious time working just to give money to an organisation that really doesn’t need it. If anyone needs it, it is you.
But Owning Your Own Home Is Good, Right?
Some people would argue that, being the homeowner is still better than living in rented accommodation for several reasons.
Firstly the house value can go up, meaning that they make a profit – this is not always true as we have seen.
Secondly, homeowners cannot suddenly be surprised with an eviction notice. They think that owning their own place means that they will not be turfed out at any time. They have the security of staying where they are.
This is not always true. If the mortgage borrower loses his or her job meaning they cannot afford the mortgage repayments and defaults on several payments they could be forced to leave when the bank repossess the house.
There is no real security with having a mortgage.
The other important factor to consider is that, in rented accomodation, if there are any problems that occur such as a boiler suddenly packing up, a leak in the roof, or a fence being blown over, it is the landlord’s responsibility to make the repairs at their expense and to make them pretty fast.
Whereas a homeowner, has to make the repairs themselves out of their own money.
So what do you do when you are the in the deep mid winter, its freezing cold, there is a blanket of snow on the ground, you have a wife and family to support and the boiler decides to stop working?
It’s fine, if you have a nice bank full of savings I guess, but what if it has been a hard year, debts have mounted up from one small crisis after another and an expensive Christmas and you are left with little money in the bank – or worse, you are deep into an overdraft?
Can you afford another little crisis to pay out for? This all on top of the cost of your mortgage.
Problems may not occur all of the time but I myself have had to replace the boiler twice since moving into my home. Both times they came with a relatively hefty price tag. Or at least a price I don’t like paying.
A landlord would put those down as expenses and they would go against any profit which is made from renting out the house. There is some tax relief for a landlord, but none for you.
Further Reading: Did you know online property has a greater rental return than traditional offline property? How To Make Money Being A Digital Landlord Renting Out Online Property
As mentioned earlier, if a homeowner loses their job, they will struggle to pay their mortgage repayments and run the risk of losing the house. To ensure that they keep paying them and keep a ‘roof over their heads’ they must work continually.
This is fine if you love your job and life is going great, but life often throws curveballs at us and if illness in the family strikes, or other kinds of hardship happens, someone has to keep working to pay the mortgage repayments.
There is no respite and very little help from the government. The mortgage soon becomes a noose around the homeowners neck where they have to keep taking one crap job after another, just to ensure that they earn money to stay in their home.
It becomes a prison. A cycle of misery which can be very hard to free yourself from.
Don’t get me wrong, mortgages can be very useful, if used correctly. Used as leverage for a business, or if you decide to approach paying it back with a business mindset, a mortgage can set you up to freedom instead of being a prison.
To avoid turning a mortgage into a financial prison of your own making, you need to pay it off early.
In the excellent book, Pay Off Your Debt In 2 Years, which was also a BBC TV series, financial advisor René Carayol helped several homeowners to try and pay off their mortgage within a 2 year period.
The reason for this, is that, paying off your mortgage early saves you thousands – if not hundreds of thousands of pounds in interest payments allowing you to enjoy more of your own hard earned money.
You are left with a house which you own outright within a short period of time and you have not paid over the odds on a property. You will have financial freedom.
Paying off your mortgage within 2 years – or early at least – will give you many benefits:
- A house you own completely.
- You are a lot calmer and have less stress each month.
- You save thousands of pounds which can be spent elsewhere.
- You will have more spare money each month once the mortgage is paid off.
- The money you earn each month is yours and not the banks.
- If you lose your job you do not run the risk of losing your home.
- You can pick and choose what work and jobs you do. You no longer need to earn XYZ each month to cover the mortgage repayments allowing you to do a more enjoyable job even if it means earning less each month.
There is nothing more stressful than struggling to cover the monthly outgoings. Losing a job while having a mortgage to pay is a nightmare. You need a place to live but you also need to reduce your outgoings and your stress levels.
Stress can lead to depression and apathy, it is very difficult to earn money and work when you are depressed and struggling to keep positive.
When your back is up against it, it is easier to find £500 than it is £1000. At least in the mind it is less daunting, it is less of a hill to climb.
How To Pay Off Your Mortgage As Early As You Can
First advice is this, if you are currently working and you can afford to pay more than the minimum monthly repayment, do so. Even if it was just an extra £100 it will reduce the term of your mortgage quite substantially which in turn will save you a lot of money in the long run.
Reducing your mortgage term by just a little can make big savings. Using the example of £150,000 mortgage with a 6% rate, reducing the term by 5 years to 20 years will create a saving of approximately £32,000.
Reducing it even further to a 15 year term would give you a saving of more than £62,000.
That is a lot of money to be saving!
If you could pay double the minimum monthly amount, that would slash your mortgage in half, turning a 25 year long mortgage to just 12.5 years. The more you can pay off earlier, the better.
In the most extreme cases, it is suggested that people spend 2 years really focusing on the mortgage repayments over everything else. This would mean reducing all other spending down to the bare minimum.
Because you will need to really curb your spending and your life until the mortgage is paid off, it is suggested you do it as fast as possible. The reason is that, 2 years is a long time to have no life, anything longer is going to be a real struggle.
If you decided that you were going to pay it off within 5 years at least you can allow yourself to do some fun stuff and maybe spend some money on a few frivolous things, but 5 years is a loooooooooong time to be living a next to bare minimum lifestyle.
It will be hard. At least with 2 years, it will be tough but it will be over sooner.
To help you figure out how much you need to pay and can save use The Ultimate Overpayment Mortgage Calculator here.
Please Note: Some lenders may have set an overpay penalty fee or set a cap on how much you can overpay each month. You need to check with your mortgage provider what your conditions are.
Also all overpayments should shorten the mortgage term and not just lower your monthly repayments.
It Takes Great Courage & Discipline To Pay Off Your Mortgage Early
In the book Pay Off Your Mortgage In 2 Years, most of the people who took part in the experiment really struggled. But it can be done. Recently in another different TV documentary I watched how a couple paid off their mortgage in a very short time.
They set themselves a budget, kept all of their basic non-essential spending down to a minimum and spent whatever money they could afford on the mortgage repayments. If it wasn’t going to be hard enough, they had two children. They had to be as strict as possible without making their young lives miserable.
All household bills were paid, and shopping was done at the local supermarket using a pre-planned and well constructed shopping list. They only bought what they needed. They avoided buying anything which would be wasted and thrown away.
Top Tip: Throwing unused and out of date food is simply throwing money in the bin. Having a food plan and sticking with it will save you a lot of money over time. Only buy the things you need for those pre-planned meals and use them.
All available money was used to pay the mortgage. Each month they would pay double or more the minimum monthly repayment amount.
During this period they rarely ate takeaway food, treats like pizza or Chinese were either home made using shop bought ingredients or they bought cheap ready made supermarket versions. They never ordered them in.
Both the children and the parents took packed lunches to work and school. They never bought any drinks or sandwiches from expensive delis or coffee shops during the day.
Socialising was done at home, they invited friends round for dinner parties and cooked tasty but cheap food for them all to enjoy. Unless it was a special occasion like a family birthday, they didn’t eat out at restaurants.
To keep their children entertained, they made sure they spent a lot of time with them doing fun things. Cinema trips were swapped to staying at home and having ‘movie night’ where the room was darkened, cheaper supermarket popcorn was made and they watched a film chosen by the children. Everyone was involved.
Trips to local parks for picnics and lots of playing around became the norm.
Not only did they save a fortune and pay off their mortgage early, their relationship with their children deepened. It was a period of incredible discipline on their part, but they certainly do not have any regrets.
They now have a home that is theirs, it is fully paid off, they have financial freedom plus, they now have a very strong bond with their children. It is a complete win win situation for them.
What Can You Do To Pay More Off Your Mortgage Each Month
As suggested earlier. If you can double your monthly repayments, do so. Increase the repayments as much as you can. Now this isn’t going to be easy. So do what you can do.
If you have no spare funds available then you will need to make more money. This will require you to put in some extra work. Something a lot of people do not like – myself included.
Ways to find some extra money.
- Do overtime or take on more shifts at work if it’s available.
- Take on a second job (but not to the detriment to your health).
- Capitalise on any skills or talents that you have.
- Sell any unwanted and unused items you have in the house.
- Buy things to sell for a profit.
- Learn new skills or how to make money by investing in courses.
Further Reading: EBay is a great way to make extra money. 5 Reasons Why eBay Is The King Of The Side Hustles
Ways to save money.
- Swap to cheaper energy suppliers
- Look for cheaper insurances.
- Cancel any magazines and TV subscriptions which you do not use regularly.
- Stop buying takeaway food and eating out regularly.
- Use a weekly food plan and only buy the item you need for that week
- Cut back on non essential items like beer and wine and definitely smoking.
- Look for special offers in supermarkets. 2 for 1 offers can save you a lot of money on items like shampoos and deodorants over a year.
- Swap to cheaper or store own brands. As highlighted in the BBC show Eat Well For Less, many people fail to tell which is their chosen brand when doing a blind taste test. Buying cheaper brands can save you a packet over time and they don’t generally taste much different. Sometimes they taste better for less.
Further Reading: 8 Reasons Why You Are Still Skint & How To Change Them
You could possibly rent out a room for a couple of years and add the rent earned to your mortgage repayments. Obviously, you need to check that your mortgage will allow you to do that, or at least inform them so that nothing bad happens. We want you to pay your mortgage off fast, not lose your home.
This is a bit extreme but, you could always downsize and rent out your house throwing as much money at your mortgage until it is all paid off. Again, you need to make sure that your home and mortgage is not compromised.
By downsizing you could move in with parents or friends and family or do something similar to what this man did: Man Saves £1,000 Each Month By Living In Self-Built ‘Eco Home’. This is extreme and probably not a viable option for 99.9% of mortgage owners but it does highlight how you can downsize and save money.
Develop Your Skills, Build A Side Business & Monetise Yourself
As the Beastie Boys used to say…
The more skills you have or the more in demand your skills are, the greater chance you have of earning larger amounts of money.
Is there something that you can do as a side business?
While you earn a wage through the day job, in the evenings can you earn more money by painting pictures, or making coffee tables out of old pallets, or teaching a language or skill to others?
It is 2019, there are so many new ways to make money online and we have access to people all around the world. Earning money no longer needs to be done using the old method of working locally for local people where cash is placed into your palm.
There are people who generate 6 figures writing articles for companies and clients all around the globe.
Plus, not all money is generated from a traditional transaction or from exchanging hours for a money. We live in a new economy.
The idea that we do something, get paid for that something, then have to repeat that something so that we are paid again, is fastly becoming outdated.
We now live in a time where we can do something once and get paid for it over and over again. People make mega bucks creating online courses or creating content for websites and membership websites which sell access to large numbers of people over many years.
You only need to create a product once and then sell it for £97 to say 500 people and you have made £48,500. I have seen this happen many times, and it is happening online a lot more than people realise.
Is there something that you can teach?
Do you know something that can become an online course?
If the answer is no, then maybe you should consider learning new skills so that you do.
Financial freedom can come at any time. If you feel that you need to learn something first then do that. Put the idea of clearing the mortgage debt quickly off for a year, learn your new skills then throw yourself back into it.
It is something to think about while exploring ways to pay off your mortgage early.
The most important thing is that for financial freedom, peace of mind, and a calmer stress free life, you pay off your mortgage as quick as you can.
So, if you do decide to pay off your mortgage early or have already, please let us know..
- How you plan to go about it.
- How it is going.
- How you did it.
We would love to hear from you.
If you want to learn how to make money, save money and generally manage your money better as well as join a growing community of fellow Smashers with the opportunity to enter competitions and challenges with prizes then join the SmarterCash forum here: (Coming Soon)