HOW TO PAY OFF YOUR MORTGAGE EARLY - UK

hello everybody - Nicola and welcome back to my channel this is the frugal cottage where we talk all things money to help you on your financial journey now don't forget to Like and subscribe and let's get started so today's video is all about how to pay off your mortgage early and there are certain things to look for when you're thinking about this and and motivational things to help you along your journey because for most people having a mortgage is something that they'll pay over 20 25 even 30 years and it comes like your bank account every month and it kind of just gets along by itself so to speak but there are things you can do to ensure that you can pay that off early and in the end have it cost you less than it would do if you left it roll on for the amount of time you've got your mortgage for so first of all how does a mortgage work well a bank loaned you the money say a hundred and fifty thousand pounds for you to buy a house you normally have to put down 10% as a deposit sometimes 5% depending on the circumstances but 10% is usually around and it's great if you can put more down but we'll say 10% but you've borrowed one hundred and fifty thousand pound off the bank now that is called the principle amount so there are three different things that come into play when you think about talking about paying your mortgage off early and the first thing is the principle so how much you owe the bank now obviously a bank being a bank and a business and they're going to want to make as much money offer you as they come so you have the principles of the Amagi boat you then borrow it at an interest rate so there are fixed right fix late mortgages maybe two years or five year fix there are variable rate fixes so it kind of tracks the base weight either of these things mean that you are paying a percentage of interest back to the bank for them to loan you that money so say it's not it's not like this but say that you 150,000 manager mortgage and your interest month is 2% then everyone said on an interest kind of back into your accounts so you're paying a mortgage but then the interest gets added back on when you are first starting out time is an issue so how it works is when you've got your mortgage bought your nice new house you moved in and your first payment goes out towards your first mortgage will keep the 150 thousand pound ombré as that then you'll notice that you've paid your mortgage payment five hundred phone foody whatever your payment is a month you'll notice then on the same not at the same day that there then is some money added back onto the motherlode in interest the way that the bank earns its money is at the start of your mortgage kind of years one two three he'll notice that the interest applied back on to öland is really high and over time because you're slowly paying off your mortgage by mortgage payments that interest goes down slightly over time the best time to do any kind of mortgage over payment if you can is when you first get it in those first three years you will make the most difference because when you first start your mortgage and your payment for the first year about 90 percent of your mortgage payment actually goes on paid off that interest it does not go towards the principal amount which is the amount above it goes to the bank to pay back for you being able to borrow that money in the first place and over time it kind of pays less and less in interest so that time it more then goes to the principal and reduces it so it might seem in the first year that you're not really making much bonus and tears that pay down your mortgage that's on purpose a bank is a business that's how they make their money back they've learned you all this money they're expecting it to take 25 that are used to pay off they want to see you return on that for them so that's how it works in the first three years also pens have bigge mortgages I suppose you will pay most of the time the majority of it is that just let's add it back home a teeny tiny bit is a principle this is when making mortgage payments is absolutely vital if you come stretch to that I will leave a link below I've got another video about why you should be over paying your mortgage with examples of just how much money even quite small arts every month can add up to over the term of your mortgage because we're talking years and years even the smallest amounts add up over time and time is a real key issue here if you want to pay your mortgage off early the sooner you get started the sooner you're kind of into the journey the better it is for you because not only do you get to pay mortgage off early and therefore don't have the monthly payments anymore but you also don't pay as much interest on your loan as expected ie the bank loses some money on what they thought they would get from you which isn't ever a bad thing so how do you pay off your mortgage early that's the key question you need to look at carefully first of all some mortgage lenders will only let you pay off 10% of your loan for that year so in the first year using one hundred fifty thousand pound amount 10 percent of that is fifteen thousand pounds so you could overpay in theory in that first year of owning your mortgage by fifteen thousand pound that does not include your ordinary mortgage payment Azumi goes on the first month that's anything extra that you can add on most of us don't have an extra ten percent but it's a good number to be able to aim for over time because actually reduce your mortgage obviously the ten percent number also reduces but if you couldn't aim to overpay your mortgage by 10 percent in the long run obviously that will help oh and this is the way we have done this to begin with in the first year if you can take the same over paying your mortgage as you did to save your mortgage your house deposit if you saved and scrimped and switched every single penny for your house deposit in that first year first three years if you want but mainly the first year try and do the same approach to your mortgage every single spare penny that you can fooling at that mortgage loan because in that first year or make the most difference it is really vital so you get into the habit of sending any kind of mortgage open whether it's on the day you get paid whether it's on the first of the month mortgage interest is calculated daily so the sooner you can get it going the sooner you can send that mortgage payment over is good the other thing to do and this is currently how we work ours is we do mortgage output payments every month but we aim to overpay by the interest at it so that our actual mortgage payment is working on chipping away that principle and month if we overpaid by the interest then that's taken care of and our mortgage payment is working on bringing down the overall balance and footless that work sometimes it's it's more than an our interests sometimes it's slightly less it depends on the month but as a starting point to try and think about how to pay your mortgage offer of early have a look and see just how much interest is applied to your mortgage on the first of the month and then if you want to be really geeky work out what buddy is per day and let that motivate you to make some overpayments some mortgages cost so much money per day that we don't even think about because it's just like a everybody has a mortgage payment it won't mortgage or them but we're talking about mortgages here everybody has a mortgage payment it just goes out that's how it is but it doesn't have to be most people's budget when we turn out their mortgage payment is the highest thing the most expensive thing they pay for each month it is for us getting really does that monthly payment would free up so many different my ideas because that money would be free every month you can send it to different places there so look at your mortgage provider and see if they've got the 10% rule because if you pay over the 10% over pay each year and in your kind of terms and conditions of your mortgage it's it's states that you are not allowed to there are very big charges for going over so make sure you don't do that then have a look at what interest is applied and at least as a starting point over pay your mortgage by that balance that might seem a bit daunting it depends how big your mortgages and how much interest you get I get pied back on it depends what kind of percentage your loan is at the moment but try and do the interest first and then actually see that number starting to reduce that bit faster because it should do if you're ever pained by the interest each month your mortgage over payment itself he's working on bringing down the actual length rather than the interest owed it's it's kind of it's a three-way thing principle interest and time so that the time aspect is crucial if you apply these things and try you could probably give or take take five to ten years off your mortgage and how good would that be you're not paying on your back to the bank and you're free of that payment so have a look at your terms and conditions see if you've got the 10 percent rule so to speak on your terms of conditions and then that gives you something to aim for we've never managed to overpay by 10 percent about I wish in the loan each year just because that's that's quite a substantial amount really especially when you're first starting off but the interest owed is a much more smaller number and much more attainable number in the first instance and then it depends how you're backwards you should be able to just transfer it straight over as a payment so I like a have your mortgage as a pay on your bank account and do via online banking and it should just go go wherever it goes and then be applied to your mortgage we're lucky we have our current account and our mortgage with the same back so when we do ours on on my man kept it's instant so it goes the current account and is applied to our mortgage and it shows that straight away not online banking if you've got mortgage and current account with different banks it might take a day or two depending how quick their payment system is but get in the habit of of transferring that over there is nothing to stop you from doing your multiple over payments a month so long as you don't go in with a 10% even if you overpay something every day so say you're gonna set yourself target the same right I'm gonna overpay I'm always by 10 pound a day every night you log on to your online banking and transfer that over get in the habit of it yes it might look a bit strange on your mortgage statement doesn't matter because because your interest is is calculate daily the more often you can overpay on that the better and then when you're thinking about overpaying have a look at your budget and see just where you can squeeze some money out of there somewhere someone slightly better little estimates you might find that you kind of you are under budget so therefore maybe you want to send that extra to your mortgage overpayment some once it might be really tight and therefore you think maybe I can't do that this month any little thing you do to overpay your mortgage will help you to pay it off early and wouldn't we all but not at the end of the day so points to think about first of all have a look and see what your interest rate is for your mortgage some people have a fixed rate some people have one that follows the base rate have a look it's in your terms and conditions of your mortgage you know all that paperwork you get when you sign it it's in there somewhere also in there is whether you can pay overpay by 10 percent some mortgage do allow only limited overpayments but they're fairly rare now most of the time it is 10 percent so check that those two things quite important just to know as numbers if nothing else you don't want to have the penalty for going over the 10 percent because it's thousands in charges it's not like a little amount and then make the start so either aim for the 10 percent and work out what that is or probably more achievable to begin with it's aiming to pay off the interest of it and the soon you get that ball rolling and it kind of snowballs and then all of a sudden oh the interest is going to keep it at the same level so say you're paying off 220 pound month in interest and then it goes down to 210 and then 200 keep your overpayment at 220 because you're used to it by then you might your money to stretch it to 250 it's those little changes that add up over time and time is the most kind of crucial thing in this obviously we expect to have mortgages for years and years and years and people move house people when big houses people wouldn't exercise it you're supposed to have that kind of mortgage ball and chain for a long time however there are definite steps you can take to paying off that mortgage early now you never know once you get above it then you think oh maybe I don't need a takeaway this week let's send that to the Morgans instead I don't need x y&z let's send that to our mortgage instead and it becomes a bit of a game to see just how much you can overpay it does become especially if you've got an online banking watching that number go down it does become a bit addictive so just be wary don't ever leave yourself short now the one thing to be wary of is once you sent an overpayment to your mortgage you cannot get that money back it's not like having it sat in a savings account if you've sent it as an overpayment providing you don't have an offset mortgage which is slightly different once you've sent that mortgage overpayment to the bank that has your mortgage in and it's applied to your loan you cannot get that money back so just make sure that you are able to do that and to kind of don't leave yourself short in the budget just because you want to do really big overpayment sometimes it's best to wait until you're near the end of the month and you're noon to pay then you can see just how much is left and then made me do an additional while it's up to you how you work it I'd suggest tracking your overpayments amount whether it's pen and paper whether it's a spreadsheet something that keeps you motivated but they're the easy steps to do to help you pay that mortgage off early and seriously every single penny helps I think I answered over like 79 P as a mortgage a payment on day which means really def doesn't it like that can't make any difference but if I did that every single day it would start to make a difference eventually so every single penny helps the more you can do to begin with in those first few years of your mortgage loan the better I'm just see how you get on and if you manage to pay off in 10 years or than the 25 think about how much money interest you saved and also think about how much it'll be like how nice it would be to not have that mortgage payment on the 1st of the month which give you so many more options wouldn't up might even give you the idea of retired early well that's another video and I hope you like this don't forget to Like and subscribe leave the cards below have you ever done any overpayments are you thinking about it is there anything stopping you from starting that I love to recover some people and get into conversations I hope you're staying safe at home and I will see you again Rosie

Channel: Nicola at The Frugal Cottage

Views: 6,713

Keywords: how to pay off mortgage, how to be mortgage free, mortgage freedom, financial freedom, mortgages, mortgage, uk money, uk mortgage freedom, how to pay off your mortgage faster, how to payoff your mortgage early, how to pay off your mortgage early, how to payoff your mortgage, how to pay off your mortgage early uk, how to payoff your mortgage quickly, how to pay off your mortgage quickly, save money hacks, saving money hacks, mortgage pay off, mortgage payoff, the frugal cottage

Id: NkY1xXt8xes

Length: 16min 15sec (975 seconds)

Published: Fri May 15 2020