Financial expert JASMINE BIRTLES reveals the secrets to owning your home in record time
IMAGINE being mortgage-free; waking up in the morning and knowing that you don’t have to earn so much this month because you have paid off that huge loan you took out to keep the roof over your head. It’s a great feeling. I know because I paid off my £200,000 mortgage in nine years and I still think it’s the best financial move I’ve ever made.
It wasn’t complicated either. Paying off your mortgage quickly is like paying off any debt early. It’s a question of cutting down on your outgoings, increasing your incomings (where possible) and putting any extra cash you have into your mortgage and nothing else. You could do it, too. Just follow my tips below.
Be mortgage-free in double-quick time Mortgage rates may be at an all-time low for some but the total amount we owe on home loans in this country is well over £1trillion. That’s a huge burden for us all to bear so overpay as much as you can now and reap the rewards later on.
Overpay If you can easily afford your mortgage payments (and many can with interest rates being so low) discipline yourself and ask your mortgage company to reduce the number of years you have left to pay. If you can reduce the term by 10 years your monthly mortgage payments will go up significantly but the amount you could save in interest payments over that time is enormous.
Be warned, however, as not everyone can do it as quickly as they would like. If you have a fixed mortgage you will probably only be allowed to pay off up to 10 per cent extra each year. However, there is nothing to stop you doing that and setting up a savings account on the side. Put those savings into your mortgage at the end of the fixed rate.
On a £100,000 repayment mortgage at five per cent interest, over 25 years your monthly payments would be £584.59 and the total amount of interest you would pay would be £75,377. If you reduced the payment term to 15 years your monthly payments would be £790.79 but the total amount of interest you would pay over that time would be just £42,342.20, a saving of £33,034.80. (source Savills, spf.co.uk) So by reducing your mortgage term by 10 years you would save a whopping £33,034.80 and be mortgage-free 10 years early.
Put in your Isa money Consider putting any money you would have put into Isa-wrapped investments into your mortgage instead. If you’d have put the money in a cash Isa you will almost certainly make more by paying off a chunk of your mortgage instead. And it’s just as tax-free.
The best cash Isa rate you can get right now is at 3.5 per cent from Santander and Alliance & Leicester. That is tax-free but historically the average mortgage rate most people pay is about six per cent so many people with a mortgage would be much better off putting that money into paying off the debt (and they are not taxed on the interest they save) rather than into the cash Isa.
Also, in general, property gives you a better return than savings accounts do. So in the long term you will make more from your property investment.
Get an offset mortgage It’s not right for everyone but if there are two of you paying the mortgage or you have a lot of savings an offset mortgage can help you pay off your mortgage faster. I had one and it worked for me.
Offset mortgages work by lumping together your mortgage with your current account and savings account. Any money you have in those accounts is offset against your mortgage so the bank assumes that you owe less than you really do. So, for example, if you have a £100,000 mortgage but have £20,000 in savings you will only be charged interest on £80,000.
This means that although you pay the same amount into your mortgage each month, less of it will be wasted on interest and more in paying off the capital. Offsets are also very flexible so generally you can overpay as much as you like each month.
Cut down on outgoings Freeing up money to put into your mortgage involves cutting down your spending in other areas. Start with the easy stuff first: l Reduce your bills. One of the easiest ways to save is to pay less for your household bills. Go to Moneymagpie.com and use the comparison services to switch to the best deal for energy providers, insurances, phone and broadband providers and your bank account (reduce those overdraft fees). l Change your mortgage. If you have enough equity in your home now could be a very good time to switch as there are many good mortgage deals on the market for those who don’t want to borrow a high loan-to-value. However, don’t forget the cost of switching, particularly as exit and set-up fees have rocketed in the past few years.
l Downsize your shopping. Slash your supermarket bills by moving to cheaper shops like Lidl and Aldi or ignoring them altogether and shopping at your local market. Street markets tend to be 30 per cent cheaper than supermarkets. l Get as much as you can for free. Max out on freebies. Join a mystery shopping agency like TNS-Global to get free meals out. See if you can get free money in an old bank or savings account with mylostaccount.org.uk.
l Have fun on the cheap. There are lots of ways to have a good time without the big price tag. Go out for dinner for half price with Toptable.com. Use shopping comparison sites to get the best price on everything you buy. Try Kelkoo.co.uk, Mysupermarket.com and Pricerunner.co.uk.
l Use your home for free holidays. Join a house swap agency such as Homeexchange.com or Intervac.co.uk and swap your place with someone else for a holiday anywhere in the world.
Make your home pay its own mortgage Why not make your home pay its way by making money from it? l Rent a room. This is the most obvious, and tax-efficient, way of cashing-in on your home. If you have a spare room you could make up to £4,250 a year tax-free under the Government’s Rent-a-room scheme. If you can’t stand the idea of a permanent lodger, rent it to a foreign student from a local school. You can find language schools at Languageschoolfinder.co.uk. Or have someone for just a few nights a week: Mondaytofriday.com.
l Rent your whole house. If you have somewhere cheap you could stay for six months or a year then move out of your home and rent the whole place to get some serious income from it. It might sound drastic but quite a few people have done it and you can remind yourself that it’s just a temporary situation in a good cause.
l Rent your driveway. If you live near a station or in a popular part of town and you don’t use your driveway or garage you could make money from it by renting it out through Parkatmyhouse.com or Parklet.co.uk. You could make £20,000 a year if you have a great space in central London.
l Hire your home as a film set. If you have a large home in or near a major city with good parking you could make £2,000 a day by hiring it to film companies.
l Jasmine Birtles’s website: Moneymagpie.com
Homeexchange.com (house-swapping); Mylost account.org (free money); Moneymagpie.com (money-making and money-saving ideas); TNS-Global.com (mystery shopping); Toptable.com (half-price meals); Kelkoo.co.uk (the cheapest of everything); Mysupermarket.com (best supermarket deals); Mondaytofriday.co.uk (part-time renters); Parkatmyhouse.com (make money from your driveway); lavishlocations.com, film-locations.co.uk (renting your home to a film company).