Top tips for clearing a mortgage early.

[DiscoDonkey]

We have a big mortgage (too big really but that's another story) we currently have 22 years left on it but ideally would like to clear it in 13 at most.

We are already over paying each month by around £400 a month and once a year manage to pay off a lump sum of £1000.

If you've cleared a big mortgage early how did you do it? Seems like an impssible task.

we have cleared ours once, about to get another Choosing to have the additional payments reduce the term rather than reducing the monthly payments made it go more quickly. as did offsetting our savings.

assume you are on the most competitive interest rate? If not you need to keep switching mortgage provider to get the lowest rates.

It looks like you are already doing really well. Hopefully in the next 13 years your income will increase so you will have more to put towards your mortgage.

Extra payments will reduce your mortgage balance immediately but your monthly payments will also be smaller. Each time you receive a letter advising of your new reduced payment ring and say you would like to maintain your current payment.
1.So make occasional larger lump sum payments to reduce the balance via online banking.
2.Maintain your monthly payments by direct debit.
3.Set up a standing order to pay an additional set amount each month if you have surplus funds.

You control Standing Orders - good for regular extra payments
The bank or building society control Direct Debits - useful for regular monthly payments.
On line banking is in your control - good for occasional or one off payments.

Our rate is 2.5% I'm not sure another mortgage provider would take us as I don't work anymore. We bought at a time they were giving away ridiculous mortgages. In hindsight we over borrowed but we are able to manage it just would be even better to clear it quickly.

Offset; targets; make it a game; start small, build up; mse Martin chat boards on paying off mortgage; rewards along the way; enjoy watching interest paid go down

Thanks good point about making sure they don't reduce monthly payments.
I guess we need to make savings elsewhere in our life but it's finding the balance between living in the moment and saving for the future.

Also play with spreadsheets to see what's possible - great ones via mse chatboards

Offset account. Makes clearing a mortgage easy; you don't pay tax on your savings interest; and you get a far better return on savings (by reducing interest payments) than savings interest rates.

I quite like my spreadsheet ... it gives you various permutations :-)
www.mumsnet.com/Talk/site_stuff/1715581-Cost-of-credit-cards-and-mortgages-the-spreadsheets

docs.google.com/spreadsheet/ccc?key=0AiZqlQ7-gn07dDN4clg5OXhLMGJWbHZhOEo4UTJINEE#gid=0

When you are in the early years, a high proportion of your payments go to interest, and only a little goes to paying off the actual lump sum. However, you are chipping away at it, and what you will find is the more you go on, then the better it starts to look, as, proportionally (if you keep the payments the same) more of each payment starts going to pay off the lump sum, as the amount needed for the interest each month is less.
Does that make sense ? I don't think I explained it very well

Backforgood
That is only true if you have a repayment mortgage : and less than 5% of mortgages sold in the 1990's and 2000's were repayment
Interest only mortgages have no capital repayment element at all

have a play with my spreadsheet ....

Thanks Talkin - yes, I was aware that was for repayments. I wasn't aware that they were uncommon - I though after people got upset with endowments that more people had gone over to them. I was assuming the OP had a repayment as she said they were already over paying.

Repayment are still v v v rare - because they are expensive
I have IO and have been overpaying for years : because my endowments are worth diddly squat
repayment deals are often less flexible than IO
and of course almost all BTL are IO

Thanks for the tips. Will look a the spreadsheet. Ours is a repayment mortgage. Didn't realise they were that rare either !

Really? Everyone I know has a repayment mortgage apart from one chap who has a mix of part IO and part repayment on his flat.

Overpaying earlier has a greater effect on reducing mortgage term than paying later. It's better to scrimp and save now and then take it easier in a few years. Also assuming you are on daily interest, don't delay making overpayments, make them as soon as you have the money.
Up until recently I've always had current account mortgages or offset mortgages and its amazing how quickly you can demolish the mortgage if you put the effort in during the first few years. It seems nothing is really happening at first but more and more of each monthly payment is paying off the capital and suddenly you find the outstanding balance has been decimated.

I think repayments are the norm nowadays, no? A lot of banks won't even lend on IO anymore due to the failure of many repayment vehicles (such as an endowment).

As per this study
www.cml.org.uk/cml/publications/newsandviews/110/411
66% of mortgages with more than 7 years to run are Interest only

IO mortgages are sensible for buy to lets as they're more straightforward for tax. But if you don't also pay off or save for paying off some of the profit then that's silly .

Talking - if you have an IO mortgage can you still throw lump sums at it and bring it down? Or are you just bringing down the interest element??

We are in exactly the same position as the OP (to the dates!)

We overpaid in the first year (long story, but we bought and rented the house for a year). When we moved in, we continued to overpay a bit (probably about £400 per month too!) DH took voluntary redundancy last year, and so we were able to pay off 10% in 2012 and 2013, which has reduced the monthly payments significantly. We cannot overpay anymore this year, but are likely to be able to do the same in 2014.

Our 5 year fix will be up in 4 years' time, and at that point, we will probably decide to reduce the term. We are lucky in that both of us have recently moved jobs and are on slightly more money.

By the way, about 20% of our mortgage was IO when we bought - good idea as we could sent the rent against the interest so our tax bill was negligible. However, I think that almost all of this has now been repaid.

Useful thread - thanks.

Bakingnovice - with an IO mortgage the normal monthly payment only pays interest. The capital does not reduce. If you then make an overpayment this will all be used to reduce the capital as your normal payment will have taken care of the interest. The following month your monthly payment (of interest) will be less (since the amount outstanding has been reduced by the overpayment last month).