How quickly can we pay off our mortgage?

[Chocolatecakeisthebest]

I am absolutely awful at finances and do not understand mortgages (sorry in advance!) But I was wondering if anyone could help me work out how quickly we could pay the mortgage off. I put my numbers in an online calculator but it said it only takes 8 years off my mortgage and I am not sure how.
So... mortgage is £1300 for 30 years. Interest rate is 5.3% fixed for 4 years.
I can overpay by 10% per year during this fixed period.
I can save around £30,000 per year, and most will be used to overpay the mortgage.
How quickly can I pay my mortgage off with these figures?
Thank you so much for any help!

Should have added. We still owe £220,000 on our house

Money saving expert. Com has the exact calculator you need.

If you save up extra money for 4 years then When the fixed rate is up you can pay a lump off it and get a new rate for what's left.

You can then choose how many years you want to pay it for

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

From memory if you pay the 10% permitted you can also pay a lump sum off in 4 years time when you remortgage.

If your mortgage rate is 5.3% you are unlikely to find a savings account to match that, so better to overpay the max of 10 % a year now and thus reduce your ongoing interest. Put the leftover savings (over and above your 10%) in a savings account or premiums bonds and throw this at the mortgage in 4 years.
So you can pay £22k a year off this year (10%) on top of your normal mortgage payments. Put £8k in savings.
Next year your balance will be lower so again overpay the 10% and put rest in savings.

I reckon in 4 years you'll have £45k in your savings to reduce the balance. I reckon you could shift the lot inside 10 years if you kept overpaying at the same rate.

At the end of 4 years paying off 10% a year, your mortgage would be about £168k.
Then pay off a £45k lump sum from your savings and remortgage (hopefully at a lower interest rate) the remaining £123k.
Do the same again over a 4 or 5 year term and I reckon you'll be done with it.

@Chocolatecakeisthebest assuming it’s not interest-only, if you can genuinely pay off an extra 10% without penalty (and assuming interest rate stays the same) then after 4 years you would have saved £120000 towards paying off the balance, you’d have paid 48 monthly payments (part interest and part capital) + 10% (around £68k but of course that doesn’t mean what you owed has gone down £68k because of interest) … if you could still save £30k a year at that time then a rough guess probably within another 3 years? Would depend on whether you re-mortgaged (not always worth it due to early redemption penalties). I’m sure there are calculators to help work this out 🤔

In that case I’d expect you to be able to pay it off in 8-10 years. Interest will be around £11k a year initially, so you’ll pay off £4k of capital a year in the first year. If you also overpay by £26k a year that’s £30k a year total paid off. That would pay it off in a little over 7 years, and obviously the interest will decrease over time.

But you won’t be able to pay that much off a year during the first four years as you’ll hit the 10% cap. That won’t make too much difference if you save the extra up instead and pay off a lump sum at the end of the fixed period (and it’s good to have an emergency fund anyway).

As others have said the online calculators will give you an accurate number but I wouldn’t worry too much about it. Pay off the maximum allowed without penalty, save as much as you can above that, pay off a lump sum in 4 years time and see where you are then. Good luck!

So you have £220k mortgage and can pay 10% extra off each year?

so this year you could reduce your mortgage using £22k overpayments to £198k and put £8k in an ISA

these are only rough figures as your actual mortgage payment will also be paying interest and reducing your loan.

Next year 2025 you could put £19.8k as overpayment & £10,200 into an ISA

but would your mortgage payments stay the same? As you owe less and are capped at 10% overpayment?

the year 2026 £178.2k

as the interest on an ISA is as high as 5.2% and your interest rate is 5.3%

id be tempted to open an ISA each and put in £15000 each each year, until you renew your mortgage in 4 years

after 4 years you’d have £135,869 as you’d have earned £13, 369 interest over the 4 years.

This would mean a remortgage of 84000k less the capital you’ve repaid in the 4 years

so you could afore to just Request a 5/6 year term, which would mean you’d not be capped as the repayments would be high or similar to what you’ve been paying/saving in the previous 4 years

https://www.moneysavingexpert.com/savings/best-cash-isa/

it’s up to 5.2% but it’s variable on that

£134,893 would be your total amount saved and with interest over 4 years with an ISA paying 4.75 - Kent reliance are paying slightly more than that

this is based on you starting with £2500 and adding £2500 each and every month- obviously you’d need to split it due to the isa cap of £20k

Thank you so much for your replies, it is really helpful!
@MikeRafone when I overpay it reduces the monthly payments, not the overall term. I am not sure if this makes a difference financially or not. With that in mind, would you recommend an ISA? Also, just to confirm, would an ISA only be a good option if the interest rate was more than what our mortgage interest is?
Thank you in advance.

OP really recommend Rebel Finance School it covers this exact topic in depth. If your mortgage rate is less than 5% it's not worth paying it off, it's better investing the money long term as compound interest works for you.

when I overpay it reduces the monthly payments, not the overall term.

That is a default you need to instruct the bank to shortern the term not the monthly payment

Youd really benefit from reading up on mse about all this. They have lots of useful info.

when I overpay it reduces the monthly payments, not the overall term

Less of a worry as if you're regularly overpaying you just keep sending money to the mortgage until it's paid off.

If the payment reduces you just have more money in your current account that you can save. You can just about match your mortgage rate with savings so just put any extra in savings, a cash ISA will mean you don't pay tax on the interest. Then pay a lump sum off your mortgage when you sign up to a new deal.

I'd be wary of reducing the term too much on remortgaging as you can clearly afford a much higher payment but are committed to it and there could be difficulties if your circumstances change.

OP have you considered an offset mortgage? I know you are tied into a deal at the moment but it’s worth considering when you remortgage.

Although paying down the mortgage is a focus for you, do also consider longer term investments that will deliver higher yields than the mortgage interest you are currently paying. So for example using your annual stocks and shares ISA allowance and investing in a medium growth portfolio could provide a higher rate of return than your current mortgage rate.

You can set up a regular overpayment up to the maximum if you can afford it. Then the amount each month is the max not what your minimum payment you have to make. You also ask them to reduce the term each month rather than the payment so that you pay it off quicker (it may not matter but you don’t want them to reduce the monthly payment as you can afford it). There are calculators on the Martins money website but unless you’ve got an amazing mortgage deal I suspect you’d be better off paying it off rather than save although leaving yourself a bit of spare cash for emergencies makes sense. Then an isa up to the annual limit is best.

I work in investing. I could pay my mortgage off but I choose not to as I make far more money on my investments than I pay in interest.

Yours is a higher hurdle but you should be able to make 10% a year fairly comfortably (on average mine make 20-30% a year, excluding during the pandemic). Even if you stuck it in an S&P 500 tracker (which I wouldn't advise), it's up nearly 20% since the start of the year. Nvidia is up 145% in six months.

You still keep the flexibility to reduce your mortgage when you next remortgage but have a pot you can dip into if needed.

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

This is really useful as it allows you to compare overpaying vs putting the same amount into savings.

The standard answer would be yes, only save if the interest rate is more, pay off the debt first.

it seem though there are so many clauses with paying of your debt and also there is so little in the interest rate between your mortgage and the savings rate if an ISA

so the money you make in interest in saving in an ISA ( tax free up to £20k per year each) off sets the interest you are paying on your mortgage.

thus my thinking, this goes against the grain with me - jyst save the money.

even more so now you say it’s your payments that reduce not your actual loan amount. This has been set up to make sure your lender isn’t losing money 😉

if it was me I’d sort a 7 year savings plan in an ISA. Save £2500 each month with the goal of reaching £254,366 ( that’s including £41000 in interest over 7 years at 5%)

that will then give you a yearly interest amount of £13000 per annum or £1083 monthly - tax free ( until any government change ISA which is unlikely)

that’s worked out on 5% interest. You could then of course use the interest from the ISA to pay most of your mortgage payments each year or leave the amount for 23 years without adding any further payments - but move about to make sure you get best interest rates ( never remove money from an Isa as you can’t put it back and it’s tax free)

you’d have £801,419 after another 23 years having initially put away £254k you’d gain £547,053 interest - if you can keep at 5%

obviously in 30 years £801,429 will not be worth what it is now, but it’d give you a good income for 7 years saving

you’d lose approximately £3000 but the issue is you’re capped on you mortgage so it’s not an easy comparison.

plus after 7 years you can change your mind and jyst pay the mortgage off with your savings - or remortgage and use the interest to pay the mortgage payments 🤷‍♀️

Also remember I’m just using basic interest rates for savings in a tax free pot - It’s not investments or pension etc

if you paid the money into an extra workplace pension you’d be looking at far better return, far better savings, as it reduces your tax on income. I’d be paying a wack into my pension right now, and just the 10% extra of my mortgage. Then a bit into an isa each year and split between cash isa and stocks and shares isa

Agree with posters above that you have plenty to be able to do a good mix of overpaying your mortgage and putting into pensions and investments now. I got on to the property ladder late and was obsessed with trying to get the mortgage paid down before children went to uni. Am in a good place with the mortgage but pension pot is very lacking and only have rainy day savings.

Ask them to swap it so your overpayment reduce the term not the monthly bill as that won't reduce the overall interest you pay by anywhere near as much

Chip isa (app) is 5.2% easy access. Virgin 5.25% fixed

You can get more interest in non isa atm so I have multiple regular saver paying 7% then fill those. Once they expire I dump the 3-4k in them into an isa.

If you're higher rate tax you can only earn 500£ interest per tax yr in interest before owing tax so depends how much you're saving

I like reducing mortgage on a psychological level - we did this - but I would probably have been better to invest in my pension earlier