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How To Pay Off Your Mortgage Early And Why You Should

August 12, 2018 By The Humble Penny 21 Comments

To help The Humble Penny stay sustainable, this post may contain affiliate links. See our disclosure. Access ALL OUR COURSES (present & future), Regular Live Coaching (with Ken & Mary), Expert Masterclasses, Supportive Mastermind Community, Accountability and much more via our NEW Programme, the Financial Joy Academy (FJA) MEMBERSHIP Programme.

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How To Pay Off Mortgage Early UK and Why You Should 

How To Pay Off Your Mortgage Early And Why You Should

If you have decided to pay off your mortgage early, congratulations!

It took us 7 years to pay off our 25 year mortgage and we’ve never looked back.

There will always be an ongoing debate about whether it makes sense to pay it off earlier or invest your money instead.

The majority of personal finance bloggers will tell you that investing your money instead is the right thing to do.

Yes, there is a lot of sense in doing this.

However, my view is that the majority of people who say this think of this one-dimensionally.

The truth is, only you will know whether it is best for you to focus on paying off your mortgage early or not.

I say this because only you will know what your specific life goals are.

Most people assume that life will carry on in a straight line. You know, that they will always earn an income and stay in good health.

I’ve looked around me and life doesn’t quite work that way. Things happen and people have to change their lifestyles to survive.

The mortgage is one thing that usually remains and the banks don’t do sympathy.

So when I hear people saying “interest rates are so low, why bother with paying down your mortgage?”, I ignore them. And so should you.

Focus on doing what is best for you. For some, it will be to focus fully on investing. Yet for others, it will be to get rid of the mortgage debt or both.

And let me remind you, the principal element of your mortgage is really what matters especially in low-interest rate periods.

Many people seem to think this is some dormant debt they don’t need to focus on because it is “cheap”.

Pay Off Mortgage or Invest

In case you wonder why I have chosen to pay off my mortgage, here are some reasons:

– I believe debt controls people’s lives. I’ve seen it hold people down for decades in jobs they hate with no way out.

It’s about winning power back. I happen to love working and enjoy what I do for a living, but who knows what tomorrow holds? It’s about having options.

– The returns (financial and non-financial) from paying off my mortgage outweigh the potential gains I could make in the 4 years or so I have left if I invested.

– Financial Independence is far more important to me and getting rid of the debt enhances this position and means zero personal debt.

– It enhances net worth naturally although this is not the primary goal.

– I am investing in index funds, ETFs and other asset classes whilst getting rid of my debt. I am not missing out.

– It took my parents reaching the age of 65 to pay off their mortgage. We wanted ours gone by 40 because we knew how different life would be without the mortgage.

– Our mortgage paid off translated into a better quality of life for our children. It also increased our capacity to do more things we are passionate about doing.

In the same way I’ve outlined some of my reasons, you too will have yours and they will be deeply personal to you.

If you haven’t written yours down, I’d recommend you do it as it reinforces your commitment to achieving your goal.

One thing I would make clear is that you should not go anywhere near paying off your mortgage if you have a credit card or expensive debt.

I am speaking the obvious here but it is worth pointing out that those should be your initial priorities.

In addition, please don’t do this if you don’t have the cushion of an emergency fund.

As I’ve written about before, the inability to manage cash flow is the number one reason most people are broke.

Related post:

  • How To Stop Being Broke Forever

Read our recent case study also on whether you should pay off mortgage or invest:

  • READER CASE STUDY: Pay Off Debts Fast or Invest?

How To Pay Off Mortgage Early UK

Below is how to pay off mortgage early and the exact things we did for how to pay off mortgage in 7 years:

1. Remortgage

Remortgaging is essentially where you refinance your debt for better terms.

You have to view the debt as a commodity in the same way the banks simply see it as an asset on their balance sheet.

Your goal should be to pay over as little money to the bank as possible. Remortgaging helps us achieve lower rates and terms.

Such terms include leaving as much flexibility as possible to pay down that debt.

You do this through shopping via brokers or using mortgage comparison tools.

Examples of flexibilities you want include no penalties for overpayments.

What you’ll find though is that most banks will have a 10% maximum overpayments in a year, after which you get a penalty.

Another flexibility is around the ability to remortgage and leave your current deal. In certain environments, you might want a 5 year fixed deal.

Whereas in others, you might prefer a 2-year variable deal whilst you keep an eye on the base rate.

2. Overpayments

Whenever we remortgage above to a cheaper deal, we always change our monthly payments permanently to be higher.

I’ve got to say, initially, you might be scared of doing this, but believe me, you’ll adjust fast.

Overpaying at the same time as remortgaging massively compounds your savings in terms of time.

We wiped 9 years off our mortgage by doing this. 9 years!! Think about that – 9 years of freedom!

If you want guidance on how much to increase your overpayments by, I’d suggest 5 – 10% each month.

E.g. if you currently pay £1,500 per month, then another £75 to £150 per month.

You can ofcourse do more or less depending on your circumstances.

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Here I show you exactly how £100 and £1,000 overpayments could be life changing:

3. Renegotiate Expenses

Every year, you’ll have expenses that need to be renegotiated. These could be gas, electric, insurance, internet etc.

For most people, these savings disappear and end up getting spent on stuff they can’t justify.

What we do is to take those savings and immediately pay it against our mortgage.

An example is our electric car. We found cheaper electricity this year and I immediately worked out the annual savings and sent the difference to our mortgage account.

I’d recommend you call your bank and get the account number for your mortgage and set it up as a regular payment option on your phone.

This way, you make it very easy for you to pay down this debt. I actually find this gets me very close to my numbers and I know my mortgage debt balance to the penny!

4. Credit Card Rewards

For years I wasted the opportunity to take advantage of this. I’d buy things via credit cards that offered me nothing at all.

Today, there are many options for making sure you’re rewarded for your expenses.

I use American Express for travel rewards and their cashback card for cashback that goes towards the mortgage.

Another way is to make purchases through Quidco, one of UK’s largest cashback website.

The key here is to direct any cashback amounts straight to your mortgage.

5. Pay Fortnightly

We make mortgage payments every two weeks.

Initially, this wasn’t by design as we just had other activities going on intra month.

However, doing this happens to have an important advantage.

Paying every two weeks leads to you paying your mortgage for 13 months in a year rather than 12 months.

Essentially, you are not only paying more earlier, thereby saving on interest, you’re also paying off more principal per year.

6. Use Bonuses

If you get a bonus annually, then this is a great opportunity to pay down your mortgage.

It’s nice to treat yourself to a holiday or something once in a while.

However, if you’re taking this goal seriously, then you should commit at least 50% of your bonus to your debt.

Again, this assumes you have no other more urgent need for the cash. Try not to invent one or plan for one as I know is typically what we all do.

If you don’t currently get a bonus, perhaps consider negotiating a fixed amount with your employer for a clear outcome.

Another option is to do a part-time job maybe one day a month or work overtime and commit those wins to the mortgage.

7. Swap Expenses

The beauty of your current expenses is that you get to decide what exactly you spend on.

We made some important decisions two years ago. E.g. We don’t pay for cable TV. This saves a lot of money that goes against the mortgage and makes us more productive.

In addition, we drive a fully electric car. This saves about £1,500 a year minimum, which goes against the mortgage.

You’d be amazed how easily these savings here and there add up! And we’re always seeking them out.

8. Money Transfer Deals

These are similar to ‘balance transfers’ but are instead transfers from a credit card to your bank account.

You can get a good deal for about 18 to 24 months interest-free and for a small fee. I recently got offered a 1% transfer fee on £15,000.

If your interest rate on your mortgage is a lot higher e.g. 3% or more, it would make sense to use this cash transfer and prepay your overpayment.

Note that, for this to make sense, you have to be on a slightly higher interest rate. Perhaps on a fixed mortgage deal.

The key here is to be able to repay the money transfer amount before the interest-free amount runs out.

The importance of doing this is that it commits you to the mortgage overpayment. However, you must have the cash to repay the money transfer ideally monthly!

I do stress, only do this if you’re good at managing your cashflow. Perhaps via automated payments.

9. Sell Stuff You Don’t Need

Are there things in your home you don’t need or haven’t touched for 6 months?

You’d be amazed how much there is if you did a mini stock take or review.

Look around your home and make a list of things you don’t need and do the work of taking pictures and selling them.

Ebay or Gumtree are good ways to do this and you could find yourself making hundreds!

10. Automate Payments

This sounds obvious but most people only do this for their bills if at all.

Do not rely on your manual abilities to do this monthly. If you’ve decided on an overpayment amount, commit and automate it.

In addition to your commited overpayment amounts, still make adhoc payments towards your mortgage.

For example, if I am cleaning the house and find £20 kicking about, I’d send that straight to the mortgage account.

In the same way, you’ll come across random bits of money here or there or even get monetary gifts.

The key is to use these towards your goal and remember that little bits add up fast!

11. Start A Side Hustle

I see these as an opportunity to explore passion projects or use your existing skills in a different way.

There is no doubt that you have the capacity to do more and make extra money.

Most people make the excuse of not having enough time to do anything else.

I watched Laura’s TED Talk below and she really captured my thoughts on using our free time.

We have 168 hours a week. Say you sleep for 8 hours and work for 10 hours per day, that’s 62 hours left per week! 

What are you doing with your spare 62 hours per week?

“Time will choose to accommodate what we put into it”. “We build the lives we want then time saves itself” – Laura Vanderkam.

Everything you do is your choice because you’re making it a priority. If you make starting a side hustle a priority to become debt free, you’ll find the time.

Enjoy her TED Talk:

Related:

  • READER CASE STUDY: Pay Off Debts Fast or Invest?
  • 10 Tried and Tested Tips To Help You Become Debt Free
  • 7 Essential Habits For A Successful Debt Free Journey

Is Paying Off Your Mortgage Early A Priority for you? If so, Why? If not, Why not?

Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.

How To Pay Off Your Mortgage Early And Why You Should

P.s. Explore our private membership program at Financial Joy Academy, where we have more than 25 courses and Action Plans created to help families achieve Financial Independence faster this decade.

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21 Comments Filed Under: Become Mortgage Free, Financial Independence, Manage Money, Managing debt Tagged With: Debt FREE, Financial Independence, How To Pay Off Mortgage Early

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About The Humble Penny

Ken and Mary Okoroafor are the founders of The Humble Penny and the popular Financial Joy Academy (FJA) MEMBERSHIP Programme - Their mission this decade is to help 10,000 Families achieve Financial Independence. Ken is a Chartered Accountant (ACA, ICAEW) with over 12 years of experience in the investment business. He holds an MBA from Cambridge University & has served as an Executive (CFO) for years. He is also a First Generation immigrant. Mary is a creative and digital specialist. A Londoner at heart with a passion for vegan food, travel & family life. Ken & Mary are parents and have two sons. More here

Comments

  1. Leon @ Make Save Invest Money says

    August 12, 2018 at 7:55 pm

    There is some great advice here Ken!

    I have shared this on Twitter…

    Reply
    • The Humble Penny says

      August 12, 2018 at 9:26 pm

      Hey Leon,

      Thanks for stopping by. Appreciated!

      Reply
  2. Rea says

    August 13, 2018 at 5:52 am

    I have really enjoyed this article. It’s certainly been thought provoking for my circumstances. You have given lots of very practical advice and tips.
    Especially interesting was the 0% money transfer with a low transfer fee. This is definitely something I need to give serious consideration to.

    Thanks for sharing. Very inspirational!

    Reply
    • The Humble Penny says

      August 13, 2018 at 10:54 am

      Hi Rea,

      I’m glad you found this useful. I find that the best learning is often through others who have been there and can share. Do please share your progress in time.

      Reply
  3. Mark says

    August 13, 2018 at 5:32 pm

    Great article Ken. We have very similar goals and time frames with regards to this topic. We are 4.5yrs out too possible less. My mortgage is low at 1.89% fixed to end at the same point I believe we will be mortgage free. We are doing it slightly different where we are investing in an ISA to build a pot that will clear the balance when the fix rate ends. There are penalties if we over pay more than 10% pa hence building the pot. We are automating an over payment of £1300pa into this pot with the sole purpose of clearing the debt. I agree we need a side hustle and passive income which need to become new goals. Some really good tips in there.

    Reply
    • The Humble Penny says

      August 13, 2018 at 5:44 pm

      Hi Mark

      Awesome stuff! I had spotted your 4.5 year goal in the Facebook group actually. Great to be on the journey together and sharing some tips. Interesting you’re now on your final fixed rate mortgage until freedom! I still have wait till 2020 to lock one in as my current deal is ongoing. Hopefully Brexit and the like won’t make the rates too high. Although with our current loan to value, i still expect a decent rate by then.

      Reply
  4. Sam says

    August 13, 2018 at 6:10 pm

    Great ideas, just wondering what percentage to you and your wife’s earning is your total (overpayment) mortgage payment per year or each month?
    How does it impact upon your lifestyle. You’re a high income earner, going from 30 years mortgage to 4.5yrs suggests you have a lot of flex in your budget. I’m not criticising, I think being mortgage free is a priority. I just wonder for readers how it impacts upon your daily living.

    Reply
    • The Humble Penny says

      August 13, 2018 at 6:39 pm

      Hi Sam

      Good question.

      The drop to 4.5 years didn’t just happen. We’ve had almost 6 years of overpayments so far coupled with remortgaging to lower rates a couple of times.

      So altogether, it would have taken 10 years to pay off on current estimate. We overpay about £1,000 a month and this comes at a cost i.e. shift in lifestyle.

      We by no means feel a huge pain from doing this but there is some pain. This is because we live frugally but not extremely frugal. We also don’t have a lot of things many people have or pay for each month. E.g. Car payments, TV packages, take away bills, credit card debt, new clothes etc.

      Those alone release a few hundred pounds a month. Again getting to the position of not having those things took a lot of work. And we do this by choice.

      We also don’t earn income from one source and this takes a lot of work in our spare time.

      All of that together means we can overpay to the extent that we currently do whilst still being able to live a decent life by our standard (a pretty simple lifestyle).

      In terms of percentages, home costs (including overpayments) come to around 35% at present. Note though that this hasn’t always been like this. We’ve had 6 years so far of income growing and mortgage falling (through overpayments etc) at the same time.

      Hope that helps.

      Reply
  5. Terra says

    August 29, 2018 at 5:13 am

    Thanks, it’s quite informative

    Reply
  6. L Ekong says

    December 2, 2018 at 8:07 pm

    Another stellar post Ken 👌 really good tips and achievable practical steps. Keep it going

    Lorraine

    Reply
    • Ken Okoroafor says

      December 2, 2018 at 8:25 pm

      You’re welcome, Lorraine 🙂

      Reply
  7. Sam says

    December 20, 2018 at 7:11 am

    Interesting to read an alternative to ‘don’t pay off your mortgage, invest instead’. My partner is firmly of this view, which may be as a result of being off from work sick for six months several years ago – as you say, you never know what life is going to throw at you. Fortunately he is now well, but I think that he feels that if we pay off the mortgage then whatever happens no one will be able to take our home from us. Thanks for an interesting and useful article.

    Reply
    • Ken Okoroafor says

      December 20, 2018 at 10:30 am

      Hey Sam, you’re welcome.

      I’ve met some successful people who I respect. And they have always said – “Just pay it off! It will change your life”.

      I totally of course understand it isn’t what the investment logic dictates… But I’ve done it anyway and recommend it any day. No regrets going down this path.

      Reply
  8. Fatbritabroad says

    February 9, 2019 at 5:26 am

    For me at the moment I’ve gone the other way and am investing.
    I’ve always overpaid especially since a divorce left me with a large mortgage but am now down to 60% ltv and a mortgage of around 3.5 earnings at 38 (mortgage 280k).
    however this has left me with alot of equity and pensions relatively (150k in pension) but relatively little outside of this. So my priority now is to grow a pot outside of these for flexibility. Currently have about 100k in investment and a mortgage fixed for 10 years in 2017. Yes this was a relatively ‘high rate’ of 2.59% but low historically but it gives me certainty on my debt and allows me to use that as a benchmark for the level of return I want and invest for the long term. The key for me is flexibility. My aim by the end of the fixed period is to have around 250k in isa invesments and a mortgage of around 200k. I’ll be 46 then I’ll then either pay off if interest rates have risen too much or use the dividends to overpay and use my pension lump sum to clear a few years after that. I’ve also never expected to stay where I am and am content to run a large mortgage to get exposure to property from capital growth and invest instead. Like you say personal choice.

    Reply
    • Ken Okoroafor says

      February 9, 2019 at 2:33 pm

      Hey Man

      I like your approach. It’s seems the smart thing to do given where you’re in life and your circumstances.

      By the way, do you have any kids?

      Prioritising liquidity is hugely important. That mortgage rate for 10 years is very good by the way. What bank is that with?

      Reply
      • Fatbritabroad says

        February 10, 2019 at 10:55 am

        Santander. I believe tsb is even cheaper now 2.29%

        Reply
        • Ken Okoroafor says

          February 10, 2019 at 11:14 am

          Santander have been pretty good at offering deals.

          Reply
  9. Frankie John says

    April 16, 2019 at 9:36 am

    These are some really awesome tips you mentioned here. ignoring a debt doesn’t make it g away. And in case of a mortgage it’s better to pay it as soon as possible.

    Reply
    • Ken Okoroafor says

      April 16, 2019 at 10:27 am

      Frankie, thank you.

      Reply
  10. TheBargainBabe says

    July 5, 2020 at 10:59 pm

    Just saw this on Pinterest. 🙂 Congrats for being able to pay off your mortgage so quickly! You’re right that the earlier one can pay it off, the better! It frees up so much money for investing and giving. We’re working on paying ours off. We’ve made huge progress but still have a couple years to go.

    Reply
    • The Humble Penny says

      July 14, 2020 at 8:22 am

      Hey thanks for stopping by! It’s pretty hard paying off a mortgage early but if it’s something you definitely want to achieve as a goal, it’s possible with sustained effort.

      The benefits of being mortgage free are pretty priceless tbh.

      Reply

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