To want to pay off our mortgage

[SparkleShineRainbow]

If you have paid off your mortgage without a cash injection from family / inheritance / lottery, how did you do it?
Would you recommend it?

Live with DH and the 2 DC, both in secondary school, in London. Been in our house 10-15 years on interest only, lots of equity due to value increase. I have a good job, salary in low 6 figures, no reliable annual bonus although some years it’s a decent 4-figure sum. Husband self employed, earns a bit above UK national average.
We enjoy a good standard of living, holidays and kids activities etc. We spend most of what we earn. I save about 10% but only started recently. Not been brought up with money. Disposable spending money has been more important until now. But I don’t want to work forever and I don’t have a plan. I now want to pay mortgage so I feel more secure long term eg if I lose job or want to cut down.

Mortgage principal is a bit over 3x combined annual income (after tax).
We have never and will never receive cash injection from family or inheritance. I sometimes play the lottery though!

We are v privileged, I recognise that and apologise to those struggling who might find the question a bit grotesque.
NC in case outing.

Well they were. I bought my first house for £26k in 1997.

most mortgage were for 25 years back then. You either did capital repayment or interest only with an endowment policy.

Endowment mortgages were definitely a big thing and even 110% mortgages at one point. The extra money paid for moving costs/furniture etc

True that they’ll pay a lot of interest but likely the overall cost is less than they would have paid in rent for a similar period and more secure than renting and they can afford to pay that rent on a bigger or better located property vs repayment and they have more spending money now that they can enjoy at this point in their lives and they will still get the benefit of an equity gain. Downside is they carry some risks vs repayment and they’ll lose some possible options for later in life as they would never fully own that home. I don’t think it’s a stupid thing though, to choose to want to enjoy more of your money now. You don’t know what might happen in 5/10/20 years time at all. I’ve had far too many colleagues & friends die in their 50s to think it’s stupid to prefer to have as much of your money to enjoy while you are young & well & can do things you might not be able to manage later in life.

This is a really common problem in London, where lots of people took out interest only mortgages as the only way to avoid renting with a family. Yes, you’re effectively renting from the mortgage lender, but you benefit from the uplift in value and don’t have to deal with the ruthless rental market.

Be aware of how 25-30 year mortgage options dry up once you hit 45-50.

If you want to remain in your current home, suggest you get mortgage advice to move to a repayment mortgage asap, now you don’t have childcare costs. Unless you owe a lot of money, it should be manageable given your high income, though you may need to cut back on spending. Things like regular bought coffees etc can obvs add up to a lot annually.

If you value your spending/lifestyle more (and we never know what life may throw at us later, so not unreasonable to enjoy life/make memories as a family while the kids are younger) then perhaps consider moving to a cheaper neighbourhood. Once kids are teenagers, they’re more independent getting around on public transport, so can travel further to school/see friends.

Yes it is more than paying rent, but this isn’t the op can’t afford it. They can. They just chose to not to, instead choosing to splurge on fun things instead. So yes it is highly stupid. And maintaining a huge debt so you can enjoy the money is ludicrous.

when the mortgage ends, she will need to mortgage again. And keep paying rhe interest as she doesn’t have 400 grand to pay it back. And she needs to keep doing it till retirement and then give them their pension to pay it off.

amyone who thinks this is a good idea needs to give their head a wobble.

edited to add , I did the numbers based on 25 years, in the ops case unless she comes up with a repayment plan, she will be paying it for at least a decade longer. So to the tune of another 150k, taking the costs of a 400k house to close to a million. It is batshit.

People pay off their mortgage by erm, repaying them. You haven't been doing that as you've been paying interest only. Thats why you have a lot of disposable income. What about pensions? Have you been paying into one of them?

Wow. So you've been living on what sounds like £150k plus for years and years and not actually paying off any of your mortgage? Just so you can go out loads and have nice holidays? I'm a bit stunned...
Unless you're willing to sell up and downsize at the end of your fixed-term mortgage, presuming you have enough equity, I would start throwing absolutely everything you have every month at paying off this mortgage.

I have have all kinds of mortgage over the last 40 years but the most common has been standard repayment mortgage over 25 years where you pay capital and interest back and are clear after 25 years. I paid off my last one (interest only) last year out of earnings by not spending all the money I earned. My children are adults now however so not at the same life stage of younger people who would not have that option due to high childcare bills and who aren't as old as I am so not earning as much etc.

My DH bought with a self-certified interest only mortgage in 2002. With no evidence of payment facility to cover the balance other than him stating "I have a plan in place to pay this off"

We then bought together with a salary related interest only mortgage in 2004 (again with no evidence of payment facility)

We ported that mortgage in 2007 and finally jumped to repayment in 2009 when the nursery fee days were coming to an end.

It was sensible for us at the time as the interest only mortgage was many multiples cheaper than rent and we benefited from some equity gain.

For various reasons we still have 20 years on our mortgage to pay off but have a plan, excellent LTV and no plans to upsize. We're staying put as long as we can.

To ask a really stupid question, exactly how did you think you would pay off the mortgage? I get it that you couldn't afford a standard repayment mortgage at the beginning, but surely you had thought about changing to that at some point? Otherwise, you either sell, pay off the mortgage and hope you have enough equity to purchase elsewhere, or you remortgage and take out a repayment mortgage.

We started to move to a higher percentage of repayment over time and ended up 100% repayment. You can usually pay off up to 10% pa without penalty but obviously check.

My husband and I both owed property before we got together. We then moved up the property ladder, and bought and sold at good times and always buy houses that need work and sell them after doing them up and living there for a few years. We accumulated a fair amount of equity that way, especially in the last two houses so that when we sold our most recent home, we bought a slightly smaller wreck outright with enough money to do it up and remain mortgage free. I have to say, it's a nice feeling.

@SparkleShineRainbow
Are you ok?
What are your thoughts? Are you making a plan?

We paid ours off by
Repayment, set to about 40% of income
Never adding to mortgage to pay for windows, kitchens (or indeed cars or holidays)
We were highly motivated though, having lost a house due to negative equity/having kids etc. Bought a 4 bed detached over 14years doing that.

Interest only mortgage is fine, you just need to put some money aside to repay the loan. As you say you've got some equity so that's good. Work out your timeline and put money aside into cash ISAs. Rates are good and it's better value than repayment mortgages currently.

If you were sitting on a low interest rate you definitely should've overpaid the principal mortgage debt down, you could still do this to a maximum of 10% of the debt without incurring an ERC. You will never pay the mortgage off by just paying the interest, this is delusional. You have decided to squander any surplus cash for holidays etc and now you're worried about long term security. Over pay as much as you can as soon as you can, it's called making a sacrifice for the greater and longer good. Why your DH isn't on the same 'Repayment' page is equally bizarre.

Some money? On the numbers she gave she needs around 400 grand, 😂

This is a good point, interest rates have been so low for so long, that would have been the time to get the principle paid down. Now rates are higher it’s way more expensive in the base case.

im not sure the op is coming back, for some reason she thought people would think she was in a v privaleged position and most folks were on interest only. And has had a bit of a shock when she’s realised how deluded that was.

@SparkleShineRainbow Start by changing from an interest only to repayment. I switched to interest only after a divorce 18 years ago. Just sold, my profit was £1400. I couldn't do it any other way. You can and should start a repayment. You definitely need some financial advice and take it.

If family are willing to offer financial help to pay it off why not? You’ll then have the equity in your house which you can use if and when you decide to move with either no or a small mortgage. I had a lot of money left to me by my nan when she died and I used £20k of it to pay off mine and my husbands debts and my car finance. Just check your terms and conditions that theres no early repayment charge for paying it off early and if there is just hang on paying it off until it doesn’t apply

Simply, if you can't earn more with your capital, then its best to pay off more of the mortgage.

Any fees, or other costs need to be factored in clearly. Plus you always should have a contingency reserve.

The Budget at the end of the month will likely influence your decision.

don’t worry. soon you start the better. most mortgages allow you to overpay. start by paying extra £300 a month and make whatever cuts you have to even if you aren’t saving anything. at the moment you are merely renting your house.
id leave 3 months salary in savings if yiy have it and overpay a lump sum of yiy have anything.
listen you have options you have a lot of equity but if you get made redundant or long term sick you will be in trouble. so just start overpaying on payday.
and literally don’t worry you could all die tomorrow life is for living too. xx

We overpaid ours over the years to pay it off early. Sometimes we managed an extra grand, sometimes we could only afford £50 a month - which is a couple of takeaways. It really hacked away at the loan and brought down the interest each year too.

At the moment you're essentially renting (although you have gained equity). However, it means the bank owns a large percentage of your house. You need to think ahead and try to find a way to pay if off.

How did we do it? We spent less than we earned each month & used the balance to pay down the mortgage principal so we weren't spending our lives feathering the nests of bankers paying interest, while having nowhere to live in old age 🤷🏼‍♀️ There are convenient products available to spread the maths across, say, a 25 year period-called "repayment mortgages".

Being less flippant though, if the London market takes say a 20% dive over the next 10 years, keep in mind that at present all of that value will come out of your current 'equity' and you'll still owe the bank the same amount back. Would you be able to buy anywhere you'd want to live if that happened?

You've obviously become entirely too used to having more cash sloshing around than you actually have in your 'real world' family budget - particularly once nursery fees dropped away. Even if you'd put just half of one child's nursery fees towards overpaying the mortgage each month, you'd be most of the way through it by now.

Or put another way - one holiday a year & two bottles of wine plus 3 coffees a week.

I get that in London it must be very easy to be drawn into keeping up with the Joneses & having the children in the right activities, holidaying in the right places, eating out at nice venues etc etc etc.

But the kind of sums you seem to be talking about would have been absolutely transformed by knocking £600 a month off the principal for the last 8-15 years.

You've lost a lot of time, but you can still get there relatively quickly if you address your household budget and find a grand a month to stash (best done now before uni fees loom!) Make sure bonuses all go straight into paying down the principal too.

As your husband is self-employed, it may be worth looking at an offset mortgage-any money he saves monthly towards his twice a year tax payments can be sat offsetting the total interest you pay and then drawn down on tax day. Make sure this is OVER a general 15/20 year repayment plan though, rather than borrowing from the mortgage to pay them.

It sounds like a fundamental household budget rethink will be required, but you've been living on borrowed time, so you might as well crack on with it now - better late than never!

DD is single now with a young child and on quite low earnings. She has had a fixed rate mortgage for about 9 years with low interest rates. Fortunately she has saved up as much as she could and each year has been able to pay off I think up to 10% in line with the terms of her mortgage. Now that her fixed mortgage has run off and the variable rate/another fixed rate is much higher she is in the fortunate position of now having a very small mortgage outstanding. Had she not done this she might have struggled with the new higher rates.