Mortgages & Home Finance How To Be Mortgage Free

Date Published:

03/06/2008

Cutting the lifetime of your mortgage doesn't have to mean hatching a complicated grand plan to get rich quick - there are easier ways.

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The Basics

*All details correct at time of publishing - 01/2007

You've just finished the initial discounted- or fixed-rate period on your mortgage. Suddenly that great deal you had seems so last year and now you're paying the souped-up standard variable rate. It's time for a rethink. 'It's never cost-effective to pay the standard variable rate,' says Louise Cuming, head of mortgages at moneysupermarket.com. 'On average this is about 6.75 per cent.'

Why Bother?

1. The average mortgage swallows up 25 per cent of our monthly income.
2. You don't want to be paying off the mortgage in your retirement. The average first-time mortgagee is 29 years old.
3.You can save thousands!

The Two-pronged Attack

You can reduce your mortgage term by finding the lowest rate of interest around (so your monthly payments are low) and then by overpaying whenever you can.

Crunch Down The Interest

'Make sure the loan itself has the cheapest interest rate possible,' says Les Jacobs, chairman of themortgagemonitor.co.uk. 'For instance, on a £100,000 mortgage over 25 years at a standard variable rate of 6.9 per cent, your repayments would be £708. But if you switched to the cheapest rate available today (4.29 per cent, equating to £543 a month), and overpaid by £100 a month, you'd repay your mortgage in 18 years, and save £70,297 [assuming that both the standard variable rate and the cheapest rate are constant throughout the mortgage term].'

Overpay

About 90 per cent of mortgages allow you to overpay 10 per cent of the capital every year without penalty. 'But remember that if you exceed the annual allowance, you will be charged a fee,' says Julia Harris, mortgage analyst at moneyfacts.co.uk.