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.

And yes, we will repay ours by just making the monthly payments on our repayment plan. We took out a 25 year mortgage at 30, so now at 40 we have another 15 years. We haven't overpaid yet as we've been in expensive childcare and renovations years, but even if we never overpay I'm ok with being mortgage fee at 55.

Was literally going to say that too.
It sounds like you're on a good interest rate for your current deal.
You usually can make repayments on interest only mortgages. We had one, and we paid off up to 10% each year and when we'd come to the end of one deal we'd pay off as much as we could before starting another deal

Well the good news is that it is only 3x your net income.

You need to work out how long you have left on your mortgage term and start doing some serious saving.

I saved up for mine every month and then overpaid both monthly and an extra chunk in a lump sum.

Why don't you start by saving the extra you'd have paid on your mortgage if you had a repayment mortgage and had had to renew when interest rates were high (4% say).

Top that up with your entire bonus if you ever receive one. Save them in a ISA or similar.

Ideally you'd be saving enough to pay the whole thing off when the mortgage term ends or you could be in trouble. If you've been on interest only 15 years that could be as little as 10 years, in which case you'd ideally need to be saving 30% of your net income towards it (300% net income divided by ten = 30%).

If it's 15 years it would only be 20%.

Either way, that's a lot so get planning now.

This is how we paid a 25 year mortgage off in 17 years, cleared at 50.

Every time a fixed rate ended we took another but reduced the term by a couple of years. Every time we got a pay rise we increased the payments slightly, even if only by £30 a month, we rounded up payments, so paid £1200 rather than £1193.00 for example.

We never had interest only.

Paying it off early was the best thing we ever did, it enabled us to help DC more and also put a fairly large extra amount in our pensions.

We're interest only. We overpay by £600 a month and have been putting lots into pensions. Our aim is to use 25% tax free lump sum to pay off the 200k that will be left on the mortgage in 3 years when we're 55. Fingers crossed it's not removed/ reduced in the budget!

Yes. And save as much as you can in the mean time so you can pay a lump sum when you switch to a repayment mortgage.

Play around with a mortgage calculator to see how much you can reduce your mortgage term by that you can afford.

Surely the majority of people just pay theirs off gradually via a repayment mortgage? I’m pretty shocked you have only been paying interest for that long. It never even crosses my mind to worry about paying off our mortgage; we pay a little every month, that’s just part of life:

We aim to have the mortgage paid off in a couple of year's time. This won't be massively early, only by a few years. No significant inheritance or family help, just keeping plodding along.

We have always had repayment mortgages. Current mortgage is a base rate tracker with a savings offset.

I changed job a few years ago which gave us the financial head space to really sort our finances out. Now I pay attention to our spending and making sure we are regularly paying any extra into the mortgage savings offset account.

We made some changes to our spending habits. Got rid of one car (I wfh so my car was gathering more dust than miles). We go on holiday every other year. That holiday is a really good one and 'lasts' us until the next one.

Op contact your mortgage company to see whether they will let you chip away at the capital sum.

I have several BTL interest only mortgages and one mortgage company will let me make unlimited overpayments, another one has a limit and some won't let me.

Work out how much you need to put away each month in order to pay it off. Open up an ISA and/or as many high interest bank accounts as you can and start whacking away the money.

Get your LTV down and perhaps seek to extend the term it in order to give you more time to pay it off.

I've made some assumptions:

That you're about 45
That your mortgage is £420000 (3 x £140k ish)
That your home is worth at least £600000 as you bought 15 years ago, so you'll have some equity despite having been interest only - LTV will be 70% in that case

Using those figures it took me literally 2 minutes to find a mortgage deal for 22 years, until you're 67 / retirement age basically, to find out that at 4.42% - just with Halifax, the first provider I clicked on - you'll be repaying £2500 per month. From a net income of what, £7500? Sometimes if you stay with your lender they let you move early.

I really don't think this is the problem you're making it out to be. Interest only for 15 years without saving to pay off the capital was silly, but it's not unsalvageable. Calm down, and put a few hours aside next week to sort your financial future. Good luck!

We are not high earners. I prioritised it and paid the extra 10% every year - it was incredibly tough but it was worth it.

Speak to a mortgage advisor and look at options for over payments on your current and swapping to a capital repayment. Or saving separately and pay off the mortgage at the end of this deal.

It all depends on how much mortgage is left vs how much you can save vs swapping to any new rates of you locked in a good deal

In your position I would save what I can until you renew your mortgage, to reduce what you owe at that time. Then switch to repayment. Without a big cash injection/windfall I can't see an alternative. At the same time I would look at spending to save more/release income for when your mortgage repayments will need to be higher.

We had a repayment mortgage, saved money and took 10% off each year, reduced the term at a mortgage switch when we knew we were close to getting it done. We had also saved enough to clear the last 100k in one go. We never touched bonus money for example, it went straight in the pot. Tbf we had the advantage of being most of the way there before we had DC, doing it with kids can be harder. The only way to do it is to reduce your spending.

Neither of us grew up with money either, it does mean sometimes you aren’t fully aware of how to manage money. I didn’t understand the importance of pensions for example. I do have to say once I was applying for a mortgage I would have felt the pressure to switch to a repayment mortgage asap once I understood. i’m the opposite, disposable income was nice but financial security was my number one priority. I didn’t want to live juggling debt like my parents did.

You can save up a lump sum and use it to reduce LTV at your next mortgage switch or you can sell up and use the equity as a deposit.

Moneysavingexpert has calculators which can be very helpful.

Obviously you are having a good look at your finances now which is great but think about your pensions, investments and savings pots as well.

We paid ours off by making it a priority. Interest only is rare here (Aus).

Paid it off in 15 years, 8 of that on one income with young DC. We had/have a careful budget. All extra money (tax returns etc) went into the mortgage. We rarely ate out & went to parks, national parks, free events. Looked for discounts, only bought what we needed. We did still do things that cost money - but they were only what we REALLY wanted to do.

We still enjoyed ourselves, still had holidays, just chose cheaper options. Now we're travelling again, with DC in tow. No way we could afford it with mortgage payments.

We aren’t close to paying off ours yet but we make over payments every year and haven’t had any family help. Started off in a smaller house and moved into a bigger house 2017/18 before the prices went crazy so super lucky from that pov

I had an interest only mortgage for the duration but saved alongside it to pay it off. Unless you wish to downsize at some point to enable you to pay off the mortgage, you need to start cutting back in other areas to free up more money for repaying it. This may mean some difficult changes to your current standard of living. There are lots of things we haven’t spent on, to afford to pay our house off on quite a small income.

We’ve paid off two, we were able to overpay every month in the first and if I ever got a bonus (we are talking c5/6 k a year) I’d never spend it it would go towards the mortgage . Second one we did the same, then my husband retired from the police and got his commutation and some of that paid the balance off. We are quite frugal though, as salaries have increased and we got promoted we’ve never upgraded the type of car we get so that’s also been available to go to the mortgage.

Been in our house 10-15 years on interest only
😬 I didn’t think people were this stupid anymore.
At this time frame interest only was absolutely not advised at all, and you would have had to explain your plan for repaying the capital if you did push to go for it yourself.

Bought with an interest rate of 4% in 2006, as the interest rate plummeted over the next 10 years we kept the original repayment going that was calculated at 4%, so we overplayed massively, as was the plan. Been mortgage free for a year or so now. The only way is to overpay. You'll have a % you're allowed to overpay each year.

When we had interest only I asked our advisor how much a month we needed to pay for the repayments to cover the term of the mortgage.
Then occasionally we paid a lump off when able.
We were mortgage free at 55.

No need to panic but you are right to start thinking about it. I would be wanting to switch to a repayment mortgage. Martin Lewis MSE has a mortgage calculator tool to run your repayment amounts through at different interest rates. I would check the market to see who is offering the best rates. If your property has increased in value over the years you will have a better loan to value ratio which should enable you to access better rates. With mine (much cheaper area) I then over paid when I could afford it. It can be done and it is a good investment in your own future.

We’ve been in our house 9yrs and mortgage free for 2yrs now. We prioritised overpaying the mortgage and ensured we were allowed to do so.

No we didn’t have the latest phone/car/holidays in those times but now we have a house no one can take away and our disposable income has hugely increased so things are massively easier now.

You need a repayment mortgage and I would make sure it’s one you can make overpayments and then I’d be doing that too.

I won't go into details of how, but if you can would recommend it. The feeling of knowing the house is yours even if your personal circumstances changed is a great relief.

I haven’t paid one off. But my ex and I were on track to pay ours off in 15 years rather than 35 by overpaying. Now I’m back at the beginning after a split. However I will overpay as much as possible. It makes a big difference.

in your case I mean I have no idea. 15 years ago was just before interest only evident requirements were brought in but presumably you had to provide something when you remortgaged? How does the bank think you are going to repay?

I have been astonished at two people recently telling me they have interest only mortgages and no way of repaying it. They will have to sell their properties. One of them reckons he doesn’t earn much so hasn’t paid it off but he’s got several lodgers in there as well as a job and interest rates were rock bottom for a decade. I can’t understand how people can live with the stress of not paying it off!

In your case OP I would start repaying more each month but honestly after 15 years you’ve got to pay so much more every month to ensure it’s paid off at the end of the term…