How To Pay Off Your Mortgage Early (So You Can Be Free)

Last Updated on 14th July 2020 by Emma

Wouldn’t it be lovely to be mortgage free?

Your mortgage is often your longest serving and biggest expense.

So it makes sense to explore how to pay off your mortgage early as a way to reduce your monthly expenses.

These days mortgage terms are at least 30 years long and 35 year mortgages are becoming more common.

That’s (much) longer than you would serve for a life sentence here in the UK.

Don’t ask me why it’s called a life sentence in the UK when clearly it’s not!

Your mortgage interest rate might not seem too expensive, in comparison to say, your credit card interest rate.

But the process of paying off your mortgage is such a long one that in actual fact the total interest you end up paying is more than the amount you borrow in the first place.

Which to me, makes it feel like the interest rate is 100%.

It’s not, obviously, but you are paying double the amount you borrow, and you don’t just borrow a few quid do you?

white thatched country cottage on lane - how to pay off mortgage early

Life is expensive and when you don’t earn a huge amount your mortgage can feel like a millstone around your neck.

When you’ve got to pay it for 30 years, that’s a long time to carry such a weight.

If you could reduce that weight, make it vanish a few years earlier, how much freer would you feel?

How would your life change if you had no mortgage?

You might be think that I am silly for even talking about how to pay off your mortgage early, after all, who has got the money to do that?

The answer is, you.

You have the money.

I am not talking about paying off your mortgage like right now, but plan it out and you could have it paid off in a much shorter time than you are currently on track for.

What could you do if you had no mortgage?

2 brown rattan chairs and table on patio with red flowers in plant pots - how to pay off mortgage early

How Does It Feel Paying Off Your Mortgage In Full?

Paying off your mortgage in full feels absolutely brilliant!

We worked hard using all the tips below and gladly gave up many things to shave 10 years off our mortgage.

It was hard but totally worth it for us.

I didn’t even share it with Mr2p for a week because I made the final payment as a surprise for his birthday one year.

We had the money in savings and the interest rate was actually lower than our mortgage rate.

We had been loathe to use those savings as they gave us a nice, warm feeling knowing they were there.

The reality was though paying off our mortgage in full at that point didn’t use all our savings, just a big chunk of them.

So it made financial sense even though initially it felt strange and uncomfortable to do so.

With Mr2p’s birthday coming up I plucked up the courage to visit our bank and ask to pay off the mortgage there and then.

I put the payment slip inside his birthday card. It took him a little while to work out what that slip really meant!

Apparently he walked around all day at work in a slightly surreal state of mind.

I still say now that I’ve spent more on him on his birthday than he has ever spent on me!

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Paying Off Your Mortgage Early Pros And Cons

Different people have different views on whether paying off your mortgage early makes sense or not.

4 Reasons Not To

1. Increase Investments Instead

For those who earn a decent income, who know about investments and the stock market, the process of paying off a mortgage early doesn’t make sense.

For them it makes sense to invest your spare income into the stock market via various investments.

The rule of thumb for investments is you can often receive a 5% return on your investments if you leave them invested for the long term.

So you can see why it makes sense on one level to pile more money into investments if your mortgage rate is say, 2.5%.

But that’s not you is it?

You are more like me.

Investments are scary, confusing and right now it’s your mortgage you’re thinking about.

2. Early Redemption Charges & Penalties

Another reason you might not want to pay off your mortgage in full is if you have an early redemption charge (ERC) to pay if you did so.

Here in the UK some fixed rate mortgages have ERCs attached which can amount to thousands of pounds if you are either paying off mortgage in full, or even just making a big over-payment.

The way round most ERCs is to overpay up to the limit allowed.

Most fixed rate mortgages allow you to pay up to 10% in over-payments each year.

Check your mortgage for the conditions attached to your mortgage.

the word bank spelled out on individual rusty, distressed blocks

3. You Don’t Have An Emergency Fund

An emergency fund is one of the building blocks of managing your finances.

You should aim to have 3-6 months of living expenses saved into your emergency fund before you start using spare cash to pay down your mortgage.

Reason being is once you’ve put that spare cash onto your mortgage you cannot extract it again if you suddenly had an emergency you needed money for.

Related post: Emergency Fund Examples: 23 (Unexpected) Reasons Why You Need One

4. You’ve Got Credit Card Debt

The interest rate on your credit card debt will be far higher than that of your mortgage.

It does not make any financial sense to pay off your mortgage early when you are carrying expensive credit card debt.

Pay off your credit card debt THEN look at how to pay off your mortgage fast.

2 visa cards on a white spiral bound notebook with pen

3 Reasons For Paying Off Mortgage In Full

1. Biggest Expense

Your mortgage is almost always your biggest monthly expense.

If you can get rid of that expense forever what a difference it will make to your monthly budget.

If you are thinking “does it make sense to pay off my mortgage?” then this reason alone is reason enough in my view to answer yes.

Think how your monthly budget would change if you no longer had that monthly expense.

What could you do differently with your money and even your life?

  • More savings
  • Change jobs to something more fulfilling but lower paid
  • Drop a day of work

2. Get Rid Of Stress

Having monthly expenses taking up huge chunks of your income every month can be stressful.

Especially when there isn’t too much left over as fun money.

Having a lot of expenses can lead to to start worrying about money.

If your bills and income are causing you stress, worry or sleepless nights then absolutely it does make sense to pay off your mortgage as fast as you can.

As long as it doesn’t cause you more stress of course.

3. You Have Extra Money Available

If you have budgeted your income, covered all your expenses, savings (and investments), retirement etc and still have a little money left over then absolutely why not start the process of paying of your mortgage.

Better to do that then fritter it away on lifestyle creep just because you have the cash.

open glass jar with savings written on black label filled with various currency and rolled up dollar bills spilling out

Should You Pay Off Your Mortgage Early?

I’m biased so of course I would encourage you to do so, but I am not you and it’s a decision that only you can make.

It’s a very personal decision whether to do so or not.

You should consider your own finances, your job situation, family life and everything else.

What is right for me might not be right for you but consider it carefully as it could just change your life (for the better).

How To Pay Off Your Mortgage Early – 7 tips

When you want to investigate the best ways for you to pay off your mortgage early, it pays to think big.

I don’t mean big over-payments, I mean the bigger picture.

It won’t be just one thing you do that frees up the cash to make those over-payments.

It will be a variety of smaller things, in different areas of your life that all contribute to your extra payments.

1. Refinance To A Shorter Term

Reducing the time period over which you pay your mortgage is an extremely easy, set it and forget it, way to overpay your mortgage.

As long as you are not in a fixed rate, most banks will allow you to reduce the term of your mortgage.

However, you need to be aware that by doing so there is no guarantee your bank will allow you to lengthen the term in the future should your finances change.

When we finished our fixed rate and were looking to refinance we kept the length of mortgage the same instead of re-setting the clock.

Our original mortgage term was 25 years and we had paid it for 3 years.

So when we refinanced we did so to a new fixed rate but for 22 years even though the bank were encouraging us to revert to another 25 years.

money being passed between two people's hands

2. Put Bonuses, Tax Refunds & Windfalls In

Bonuses, tax refunds and the like are a really easy method to pay off your mortgage early with the lump sum they provide.

These lump sums are not part of your normal monthly income so perfect for throwing them at your mortgage as an extra payment.

If you usually use these lump sums to treat yourself, consider this.

You want to be paying off your mortgage in full, that’s one of your financial goals so what better treat than to throw a chunk of money at your goal and get there faster?

If you feel the need to spend some of your bonus then aim for 10% and 90% into your mortgage.

3. Make Regular Extra Payments

Every extra payment you make will reduce the overall amount of interest you end up paying and therefore help you pay your mortgage off faster.

Even £/$10 a month will add up over the course of a few years.

When you get a pay rise, instead of spending that extra money you are now receiving, keep your budget the same and put your pay rise toward your mortgage.

When we got serious about paying off our mortgage faster, I worked to get myself promoted.

All my extra salary went toward our mortgage and savings and we kept our lifestyle exactly as it was before my promotion.

Having a 10% pay rise was a nice reward.

Even nicer was that it was going toward our goal rather than being spent on a few nice things.

calendar with coloured pins in it alongside a bluw alarm clock and piles of coins

4. Make Payments Every Time You Are Paid

This works best when you are paid weekly or bi-weekly as your mortgage payment can often be one monthly payment.

And it presumes you are paying it at the end of each month so interest accrues each day.

Paying weekly or bi-weekly increases how much you actually pay slightly and the money hits your mortgage account earlier so less interest accrues.

Which means more of your payment will go towards your mortgage principle.

As someone who was always paid monthly, this was one thing I could not do.

5. Cut Your Monthly Expenses

Your monthly bills often take up a huge chunk of your income each month don’t they?

If you could have the same bills for a lower cost, you could put the money saved toward overpaying your mortgage.

It’s like getting free money, because your bills are still being paid.

If you look into how to cut your monthly expenses I am sure you will find some of your bills can be reduced.

Some people might say “get rid of cable” and feel free to do so.

But if you don’t want to then negotiate with your cable supplier and see what deals they can offer.

Don’t auto renew your annual bills like house insurance and your cars.

Companies give new customers the best deals, so be a new customer to a different company and bank the savings you make straight into your mortgage account.

Because we always lived on a low ish income, trying to cut our bills every year was a normal thing to do.

Once we got focused on our mortgage, every penny that I managed to cut from our bills was put towards overpaying it.

One year I managed to save £4 off a monthly bill, so I paid an extra £4 every month into our mortgage account.

Another year I shaved £100 off an annual bill – it went straight into the mortgage.

As you can see, I am not talking hundreds of pounds each time, I am talking little bits here and there.

But they add up and every extra payment you make is reducing the interest you pay.

How To Start Saving Money: 7 Tricks You Can Easily Do

woman sitting crossed legged working on a calculator and with open notebook

6. Get Into Frugal Living

Frugal living is sometimes seen as trying to live as cheaply as possible, where you end up being a cheapskate. Not true!

Being frugal is about being mindful with your money, considering what is important to you, your family and your goals and spending accordingly.

Frugal people have many habits that are natural to them.

Stretching their money to make it go further, without compromising their values, is an integral park of their frugality.

Being frugal would help you pay off your mortgage even faster, if that is what you want.

Check out these posts for loads of ideas on how to live frugally:

Frugal Living For Beginners: How To Get Started

53 Old Fashioned Frugal Living Tips For Your Modern Life

How To Be Frugal: 200+ Best Frugal Living Tips To Save Money

7. Downsize

A quick way to pay off your mortgage early is to downsize your house and therefore downsize your mortgage.

It may seem radical but it’s a viable option.

Especially if you bought your house a while back when you thought buying the biggest property you could afford was the right thing to do.

Smaller houses (and cheaper houses) cost less to maintain and have lower utility bills.

So your monthly budget will reduce not just by your mortgage payment but by lower bills.

Thereby freeing up yet more money.

We did precisely that and halved the size of our mortgage.

The added benefit was that with a smaller mortgage it then made it feel more doable to pay off our mortgage faster.

It brought our mortgage free date forward by roughly 3 years.

modern pin American house with garden out front

The Best Ways To Pay Off A Mortgage In 5 Years

Paying off your mortgage in just 5 years is a huge challenge but it can be done if you plan for it.

In reality, your plan is going to start before you have even bought your house or taken out the mortgage.

1. Buy A Smaller House

Your bank may tell you that you can afford a mortgage of £/$200,000 but you don’t need to take the maximum loan offered to you.

Indeed, even if you didn’t want to pay off your mortgage at all I would encourage you to not get the max loan.

It’s a lot of money and a huge debt to pay back.

The number one best way to pay off your mortgage in 5 years is to buy a small house which doesn’t come with a large mortgage attached.

2. Have A Big Deposit

The bigger your deposit, the smaller your mortgage. Combine a small house with a big deposit and you are already ahead of most people.

3. Take Out A Small Mortgage

The sum of a small house and a large deposit is a small mortgage. The smaller your mortgage, the less you have to pay off.

And of course the quicker you can do so.

4. Prioritize Your Mortgage

When you aim high and want that mortgage gone within 5 years you need it to be your number one focus, at all times.

Everything you do with your money needs to revolve around maxing our your over-payments.

What house you buy, where you work, what car you have, what vacations you take, what food you buy, what clothes you wear.

All of these need to be centered around freeing up your money to throw at your mortgage.

single level white thatched cottage with chimneys

5. Don’t Take Vacations

The average cost of a vacation is over £/$2,000. That’s a nice lump sum for your mortgage.

Why take a vacation this year when in 5 years time you will have no mortgage? Your choice.

6. Have One Cheap Car

As a couple it’s very easy to end up with 2 cars, even without kids.

And getting a new car on finance is almost as easy as buying something in the grocery store.

But cars cost money, even just in maintenance costs. And car finance is a monthly payment you will not want to have in your quest to be mortgage free.

If you need a car, buy an old one without finance. And don’t upgrade it until your mechanic says it’s dead.

7. Don’t Have Kids

Kids cost a lot of money whether that’s in money being paid out on their behalf (childcare, cloths, activities) or money lost due to a parent staying at home.

Putting off having kids for 5 years means you can max your income and not have those costs.

8. Throw Everything At Your Mortgage

Paying off your mortgage in 5 years is a tall order and not for the faint-hearted.

The reality is, unless you have a huge income and a small mortgage, you are going to have to throw everything you have at your mortgage in order to achieve your 5 year goal.

It can be done but you need to have a water tight plan and prepare thoroughly.

large sandstone coloured thatched cottage with mullion windows and white wooden door - to signify how to pay off mortgage early

Paying Off Your Mortgage Early

It’s a personal choice whether you do so or not.

If you are on a moderate income and the size of your mortgage worries you then I would encourage you to consider making some over-payments.

For me it makes absolute sense to look at how to pay off mortgage early.

For you I hope it does too but remember – you do you.

These posts will help you look at more ways to save money:

7 Things To Do At The Beginning Of Every Month For Your Money

The Best Money Habits To Transform Your Wealth And Happiness

21 Money Saving Tips For Beginners – How To Start Saving Big

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About Emma

I'm here to help you become confident in making the best money decisions for you and your family. Frugal living has changed my life, let me help you change yours.

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