For as long as I can remember I had wanted to buy my own house, and at the age of 23 years old in 2016, I achieved that goal. We purchased a 3-bed semi-detached house that we currently live in today. It cost £173K at the time, and we put down a deposit of £40K, which was approx 23% of the overall purchase price. The deposit was made up of £20K each that both myself and my partner had saved up and the rest of the outstanding balance was paid for by taking out a mortgage. The mortgage was for a 25-year term for approx 2% annual interest at the time we purchased. This left us with payments of around £550 per month to pay back our mortgage over the 25 year period, which could change depending on whether interest rates go up or down. This amount was more than manageable for us and allowed us to live very comfortably for the first few years, however over time, I began to wonder, what should we do with the extra money we had every month?
After typing a few things into Google, I came across something called ‘The Mortgage Over-Payment Calculator’. Put simply, this is an online tool you can use to work out how quickly you can pay off your mortgage by making additional payments on top of the minimum payments that you are required to make. Below is a screenshot showing what information the calculator asks for, I have used my own circumstance as an example.
Once your press ‘Calculate’, it gives you a lovely little graph showing exactly how long it will take to pay off your mortgage. See Below.
This is where things start to get interesting! You can play about with the figures to work out your own scenario, although it is important to note, the majority of mortgage providers only allow you to pay off 10% of the overall mortgage balance per year so it is worth checking what you are allowed to do before making any additional payments. After re-assessing our finance’s, I worked out that we could afford to pay an additional £675 on top of the £550 we are required to pay, and if we did that, the outcome would look like the graph shown below.
Represented by the second and much shorter line on the graph, by simply making an additional payment every month of £675, we would save £22,472 in interest alone!… And we would pay the mortgage off 15 years & 1 month earlier than we would have before! That is how you destroy your mortgage!
Now if you’re like me, this is the sort of image you cannot unsee, and once you know the numbers and what the outcome could be, there is no turning back. I realised by looking at this graph that we could be mortgage-free at 33 years old! Nobody I know personally has achieved that or even came close, but then my mind decided to kick it up a gear and I thought of something that would be even better… Mortgage Free at 30! Sounds crazy right? It did to me too, but since then, that has been my goal, and as I stated in my first post on this blog, I am currently 3 years away from completing that goal.
So now that you know about the Magic Of Over-Payments, I challenge you to use the calculator yourself, work out how much extra you can afford to pay each month, and see how many years you can knock off your own mortgage. It doesn’t matter how big or small the over-payments are, even if you can only free up an additional £20, £50 or £100 to put towards over-payments, you will be amazed at how much it will save you in interest over the lifetime of the mortgage, and also how much quicker you will end up paying it off. I will leave a link to the Over-Payment Calculator below, let me know how much time and interest you could knock off your mortgage in the comments below.
If you could Like and Share this post I would be most grateful, and feel free to Follow the blog for many more posts along my journey to FIRE.