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.

If your house has increased in value enormously (quite possible in places like Walthamstow where houses are over a million now that were a third of that a decade ago) then you can sell the house and use the balance to pay off the mortgage.

Is that your situation OP?

I would go through your expenses with a fine tooth comb and go back a few months in detail to get an idea of where your money is going.

Look back at just over a year to look at yearly subscriptions etc and make a note under different headings

i.e Monthly and yearly household bills that remain what ever you do

Monthly bills that you can get rid of (like interest on credit card debt etc)

Food Shopping
Cars (if you have one)
Transport
Clothes
Eating Out (Dining out, Coffees etc)
Holidays and days out
Birthday and Christmas presents etc
And One offs for everything else

Then look to see not only where you can save any money by comparison sites, not buying stuff you don’t need etc

Sell anything you don’t use, need or want

I would also look at alternative sources of income. Have you a parking space or a room to let out. Can you do a job a few days or evenings per month to raise extra money .

Then with every £1000 you save, send it to the Mortgage company

Paying off a mortgage is for most people done bit by bit over years
Very few get cash windfalls to get rid of it.

Given you have a repayment date when the mortgage finishes, Have you worked out exactly how much you would have to pay off each year to bring it to £0 by that date.

Yes that’s what we did, and when the initial sum was reduced to such an extent and the monthly extra became more than we could pay off without incurring penalties, we diverted the extra into a savings account we use just for this purpose, which allowed us to pay a larger amount off when a given deal ended. Thus reducing it for the new deal and allowing us to access better rates, as the ltv was reduced.

so at the start of nov we will make the last lump sum payment and close the mortgage off, it’s taken us ten years, and then we will continue to save that same amount each month, but use it for other things, like house renovations or holidays etc.

the amount of interest the op will have paid will be astronomical, as she has continued to borrow the full amount for 15 years and pay interest on the full sum, instead of paying down the initial sum each year and reducing the interest applied.

Where will she live? They both work. It is highly unlikely they can move to a cheaper location, and they have kids still at home.

I will be going against the majority but I actually think a legitimate option if you have loads of equity would be to stay on interest only, enjoy having the money to do things while younger/while kids are small and to plan that you will sell the house and move to a cheaper part of the country at a later date. There is increased risk with that approach as you have to think what if one of you were to become ill/lose job etc but I don’t think it’s fundamentally a wrong approach to choose living for now vs planning for the future in some aspects of your life. If I were to go for that approach I’d ensure I was maxing out pension contributions and would work on having enough saved to be able to live for a year off that to allow for a redundancy/illness etc. You also have to accept you’d potentially need to move earlier than planned if things went wrong work wise.
Do you want/are you willing to have less disposable income now to reap the benefits later? If you are do some budgeting, save what you would be paying off capital on a repayment mortgage if you can’t make repayments without a penalty & then pay that when you next renew. If not then have a long term plan that involves selling up and moving to a new/cheaper area in 15/20 years time and view your current home as a very affordable rental property that will also build the equity to buy you a lovely home to retire to in the future.

Go onto a mortgage repayment calculator and work out what the payments would be to age 65 years.
Then overpay to that amount each month. Reassess when you remo.
Most mortgages allow 10% overpayment each year penalty free - check your mortgage offer.

If it’s only 3 x salary this should be easily doable.

If you can afford to pay more then pay more. Throw the bonus at it too. Remember the overpayment limit.

When you remo speak to a broker

You need to change your mortgage to start paying the capital and you need to start budgeting.

You are not in a privilege position if you are relaying on salaries, have so much debt and are wasting do much money on interest for the past 15 years with no capital repayments.

But as someone said better now than never

Why have they been badly advised? Maybe the adviser told them to invest the money and they didn't? Op has admitted they wanted small payments and prioritised day to day rather than savings. Things were very different 15 years ago when it came to interest only as the stricter rules came in in 2014.

As a mortgage broker I get fed up that any mortgage options are automatically due to bad advice and trying to make out it is the advisors fault. I have someone at the moment with a try of complaint trying to blame me that his mortgage is unaffordable as he has split up with his wife and can't afford it on his own - he thinks it should have only been affordable on one salary and apparently I should have forseen they may get divorced. Quite why his marriage break up is worth of a complaint against me I am not really sure but I have to waste my time defending.

this is shocking advice. As the amount of interest the op will have paid will be in the hundreds of thousands. If you continue to borrow the whole sum then the interest is applied to the whole sum.

do people have so little financial acumen?

This.

Change to repayment so you are gradually paying off.

Make sure you both have life insurance to cover debts.

Just pay a bit off each month on top if you can. You'll be surprised how it gradually comes down.

How the hell did your lender allow this. It is, as others have said, a ticking time bomb.

You need to work out how much a month you need to pay off, given the time you have, say you are aged 40, I'd realistically say 20 years. So say mortgage is 300k, you need to pay £1250 per month over 240 months. Obviously the younger you are, the better, as less per month.

You need to start paying it off NOW, not at some point in the future.

In your OP you talk about paying off as if you thought of it as a way to get ahead, but what pp are telling you is that you are behind yourselves. If you do a bit of googling it’s easy to find stories of people who had to massively downsize or lost their homes because they hadn’t got a plan for what to do at the end of their interest only mortgage. You say you have got equity due to the rise in value, but you’ve only got what you would have once you’ve paid off what you owe.

Ring your current mortgage provider to find out what the terms are for making early payments. Some let you pay any time, some limit the amount you can pay off each year, some come with some kind of charge.

I think you need to think a bit more about your longer term future. There comes a point when you will be too old to be offered a new mortgage because they look at how many more years they think you might be working for (the mortgage provider decides for themselves what they think is likely). If you are looking for a mortgage for 25 years, this will therefore start to affect you in your later 40s. Shorter terms may be available but the monthly cost would be very high even if they are willing to lend at all. This will mean that remortgaging may well not be possible when the current mortgage comes to an end and you have to pay what you owe.

It also means that when you walk away from your current home with any equity that is left, you may not be able to access any mortgage finance to help buy your next home. So you need to think about what position you will be in in your late 50s, 60s and beyond. You may think now that you’d love to go and live somewhere much cheaper than London, but would you really, how cheap would that really be, and will you be able to afford to live somewhere you actually like and are happy in?

These things are very personal, but the other aspect of the future is that you may want to be in a position to give some support to your children as young adults. Either by them living with you (rather than paying exorbitant amounts in rent) or helping them with a deposit. You didn’t benefit from this kind of help, but our experience was that not having had help made us want to help our kids.

I hope you are contributing to your work pension scheme and that you are taking advantage of any tax-efficient ways of payment they may offer and you’ve looked at whether your employer offers any incentives for higher contributions.

There is tons of good information about all of this available on-line as pp have said. You aren’t the first person who doesn’t spend all their time reading up on personal finance, but don’t leave it too late.

Dear Rachael might put an e d to that plan

This is the best advice so far. There are so many variables that go into this.Whether you overpay the mortgage is dependant on a few things- whether the interest rate is higher than what you could expect to get elsewhere, namely investing. I have a big mortgage, but am only making the minimum payments as the rate is 1.19% and I am averaging 10% returns on my stocks and shares ISA. I do realise that there's a risk my investments will go down, but over the long term it's statistically very unlikely. As a rule of thumb though, if you can earn more in interest than you're saving in mortgage interest- do that. It does of course require the discipline to make sure you are actually putting away enough each month to cover the mortgage at the end of the term, but if you and your other hald can each fill a 20K allowance each year, even a 400k mortgage would be paid off within 10 years.

To help contextualise this, some example numbers .

on a repayment mortgage, for 400k, with an average 4 percent interest rate over 25 years you will pay 234k in compound interest. And have a zero balance at rhe end, with the 400k initial borrowing paid off.

on an interest only mortgage, for 400 k, with an average interest rate of 4 percent over 25 years , so the same terms, you will pay a total of 400k of interest. And still have a balance of 400 k owing at the end,

so the op would pay an additional 166k in interest over a repayment mortgage.

I agree with PPs, you have been financially irresponsible. You need to make a budget with your DH and prioritise saving. I don't know the terms on your mortgage or what type of deal you are on but most people can overpay by 10pc each year. Even if not you need to get used to living on less and an emergency fund is always useful.

I also don't come from money. I was in debt through most of my 20s and didn't have a clue about finances. I used the MSE forums and later reddit to talk to people about getting out of debt, and was really inspired by people paying off their mortgages and investing well.

As we've earned more we haven't let our lifestyles creep massively. We have nice things but they tend to be bits we think will last. We wouldn't go on holiday if it left nothing in the bank.

Basically everything we have has been gained slowly, pound by pound. No inheritance or bonuses. But the later in life you leave it the more impossible it becomes to build wealth. It's all about compounding and paying down debt so you pay less interest on it in the long run.

I don't come from money either and Mr Monkey and I are the first in our immediate familes to own a property.

We just hate debt so prioritise paying that back.

I have no idea why someone would choose an IO mortgage when they the ability to pay down the capital every month. But then I am fairly financially conservative and prefer a simple life.

Been thinking about this one and I actually can't believe that two mortgage providers, because you said that you remortgaged, allowed interest only mortgage in these circumstances

When I was single I had a small house and got close to being mortgage free by renting out the spare room to a friend and overpaying the mortgage every month by £250. I was earning significantly less than you! But being mortgage free was my priority.

Then I got married to someone else who had good equity. We sold our houses to buy together. Overpaid aggressively and put spare room on Airbnb. Mortgage free by 40.

Definitely worth it. We still had lovely holidays etc. DH has just been made redundant so having no mortgage is a huge comfort.

Wow that is stark!

I guess I thought that people would only have an interest only mortgage if they were planning to sell the house to pay off the mortgage at the end. I guess that is a viable option if you accept you will need to downsize

I think it is going to be hard for OP to reorient their family's lifestyle to afford a repayment mortgage as they have essentially been spending the extra money they would have paid.

Madness!!!

It's good that you're realising that your situation is somewhat precarious. Do you discuss finances with your husband? Or as the much higher earner is it down to you? You absolutely both need to be on the same page with this as to get yourselves in a stable financial position fundamental changes in your finances will be necessary as you presently have no vehicle to pay off this mortgage.

The advantage you have is that you are a high earner so that's in your favour in seeking a solution. As a first step I would consult a reputable independent financial adviser and see what he/she comes up with.

You have been living above your means for a long time and good for you that you want to sort this out. You have a couple of options - if I were you I would absolutely get advice on what going onto a repayment mortgage would cost you monthly, and it it's feasible with a bit of economising then absolutely go for that. This gives you peace of mind for the future.

The other option is where you need to have an honest discussion with your husband and be honest with yourself too. Would you actually be happy to sell your present house at some point in the future and relocate/downshift to enable you to pay off your mortgage? Personally I would find this option incredibly risky, but it may be something to think about. This also predicates on house prices and the housing market remaining stable.

You will have seen from all these comments most people have repayment mortgages and pay monthly over many years. It's not too late for you to get yourself out of this - but please realise you're actually not incredibly privileged (as per your comment in your first post) as you've been putting your financial stability at risk with an interest only mortgage. You'll be the one to suffer here, as the main breadwinner - act now to at least give you options and avoid sleepless nights!!!!

Oh gosh, I thought you were going to be asking about overpaying your mortgage to get it paid off more quickly - not if you should start paying off the balance because you’re on interest only. Yes yes yes! It is madness to be frittering money on holidays and a “good standard of living” and not paying anything toward actually owning the house you live in (if you have that option and aren’t stuck renting). Please speak to someone and get some decent financial advice about this!

Everyone just pays their mortgage off slowly over many years, very few people just pay it off through handouts. How odd that you think this is how people are paying off their mortgage!

Get urgent advice and you need to seriously cut back!!!

Our first house was one we could afford on one wage. I was only 6m into my job and the move was because my partner was taking a new job starting after we moved. We wanted a buffer in case one of them didn't pan out. One almost didn't and it did help reduce the stress.
We were on a low fix for 5 years and knew the low interest rates couldn't last forever. We also were wanting a family so knew that we would never have as much disposable income as we did then. We overpaid as much as we could (unlimited overpayments with our mortgage provider). After 4 years we were in a position where we could have paid off the mortgage in full at the end of fixed term but having had a child by this point and the pandemic turning my job into a WFH job we needed a big house so we moved and now have a 30% LTV. We haven't been able to overpay this mortgage with nursery fees and renovating the house. Also we are currently getting more interest in savings that we are paying on mortgage so we most probably use savings to pay off a lump sum when we come to the end of our fixes.

We regularly evaluate our finances to make sure we are saving and getting the most of our savings. If the savings rates drop near the mortgage rates we will restart overpayments.