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At 62, Sir Keir Starmer has paid off the mortgage on his £2m terraced house in north London, finishing it five years earlier than is typical for British homeowners.
The Prime Minister now joins the lucky third of the population who do not have to spend money on rent or mortgage payments.
Jinesh Vohra, who runs mortgage overpayment app Sprive, says that since the average first-time buyer is now 31 and the average mortgage length is 32 years, most of us will be paying off our mortgages “well into our teens.” sixty”.
“However, there are things you can do to become mortgage-free faster,” he says.
It’s worth it: The Prime Minister now joins the lucky third of the population who don’t have to spend money on rent or mortgage payments
do the math
Overpaying can shave years off your mortgage payments and save you thousands of dollars in interest.
For example, on a typical £185,000 mortgage with a 25-year term and an interest rate of 4.93 per cent (the current UK average for a two-year fix), an overpayment of £100 a month would mean pay the mortgage in three years and nine months in advance.
During that time, you would save almost £23,700 in interest payments.
Making overpayments can also help you get a cheaper deal when renewing your home loan.
Mortgage companies are willing to offer cheaper deals to those who own a larger percentage of their home, so paying extra to fall into a preferred group for a new mortgage can get you a better deal.
According to Moneyfactscompare, which analyzes deals available on the market, the best mortgage rate available for a three-year fixed-rate mortgage for someone with 10 percent equity in their home is 4.94 percent, while for someone who has paid 40 percent. percent of the value of your home, is 3.99 percent.
With a loan of £185,000 over 25 years, the lowest rate borrower would pay £100 less per month for a loan of the same size, £975 versus £1,075.
Check the fine print
Lenders often restrict how much you can overpay.
“Many lenders may impose early repayment charges (ERC) if you exceed a certain overpayment limit, usually 10 per cent of the outstanding balance per year,” explains Pete Mugleston, at onlinemortgageadviser.co.uk.
These fees are often expressed as a percentage of the total mortgage loan and can be as high as five percent.
However, some mortgages don’t have these fees and you can also overpay without fees when you get to the end of the deal.
Those who make excessive mortgage payments may end up with a lack of flexibility in their finances if circumstances change, as it is usually difficult to recover the money they have overpaid.
Wealth management expert Charles Incledon, of Bowmore Wealth, says paying off your mortgage early and then discovering you don’t have enough money to live on is a particular problem if you’re older and can’t remortgage to get the money out again.
He added: ‘Equity release is gaining popularity and more and more people are having to use it. But why do they have to use it?
‘Because they’ve paid off their mortgage, they’ve retired and then they realize that although they can live in their home without a mortgage, they don’t have enough income to live on, so they withdraw the equity from their home. “It just doesn’t make any sense.”
Savings: Overpaying can shave years off your mortgage repayments and save thousands of pounds in interest.
Could you do more?
Incledon says many who choose to pay off their mortgages could put their money to work harder elsewhere and retain flexibility for retirement.
This could include paying more into pensions and Isas, where money can grow tax-free and the return can be greater than the savings made by paying off mortgage debt.
However, this depends on your mortgage rate. If you closed a deal while rates were high, you’ll likely have a harder time achieving investment returns that exceed your loan rate than when rates were lower.
Mr Incledon says: “People need to think carefully.” “It’s all very well having a house where you have no debt, but if you don’t have investable assets that can provide you with passive income, then you don’t have money to live on.”
Of course, for many, paying off their mortgage is about more than just making the most logical financial decision: it can give them a sense of freedom.
When it was worth it
In most cases, the title deeds for your property are no longer sent to you when the loan is settled, as they are held electronically by the Land Registry. Instead, the bank will contact the Land Registry and inform them that the property is “released” or liquidated.
Once you own your property outright, you must register a Property Alert with the Land Registry.
This will alert you if someone takes out a fraudulent loan on your property or attempts to change ownership without you being notified. This type of fraud is more common in unmortgaged properties.
You can set up the alert for free at gov.uk/protect-land-property-from-fraud.
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