Couple managed to pay off their massive mortgage in less than a decade after discovering how much they would pay in interest over 25 years
Many Brits are now sidestepping the exorbitant interest payments charged by lenders through the savvy tactic of making mortgage overpayments, which can be added to their regular mortgage outgoings or paid as a one-off sum. The family from Watford has joined the ranks of homeowners adopting this approach for greater financial control.
After tying the knot, the pair were eager to kickstart their savings for a mortgage without delay. Six years on, they’d accumulated over £100,000 in savings and snapped up a five-bed house near Watford for a cool £440,000.
Good salaries enabled them to tackle a sizable mortgage head-on after paying a hefty deposit. He recounted: “We took an offset mortgage, which was great, it meant we could make overpayments.”
Still, the reality of interest rates struck him like a bolt from the blue: “However, when I looked at the statements I could see that for every £1 we paid off 50p went in interest to the lender. I was shocked to see in black and white just how much lenders front-load interest payments, so I sat and worked out exactly how much interest we would end up paying over the next 25 years. It turned out we would pay £160,000, that was more than the very large deposit we had put down.”
The homeowner found himself grinding away for 60 to 70 hours weekly to keep up with the mortgage dues. He shared: “This meant I barely saw my family, when I left for work in the morning my son would be asleep, when I came back at night my son would be asleep. I enjoy hard work but I want to have my own business.”
He was determined to reclaim his freedom and spend more time with his loved ones, so he looked into making extra payments on his mortgage. He revealed: “Realising that we would end up paying such a large amount in interest I suggested to my wife that we try and pay the mortgage off sooner.
“I suggested five years. At first she thought I was crazy but we realised we could do it, we had been very disciplined when saving up for our deposit so we were used to being careful.”
To turn their goal into reality, the family had to adopt a frugal lifestyle. “We used discount vouchers, we always made sure our savings were in the highest paying account, we swapped utility bills,” he said.
“We also saved as much as we could by using cash back sites and cashback on credit cards. We would make sure we put large necessary purchases on credit cards – such as my commute – so that we could save air miles and get discounts.
“When we go out for meals we always make sure we try and find a discount. We also swapped our offset mortgage when the deal expired, this was because we would be charged a penalty if we paid off too much.”
The mortgage expert is keen to dispel the myths that many mortgage holders have about making overpayments. Mr Vohra stated: “One of the first things people talk about is early repayment charges.
Obviously, no one wants to get charged and those charges can be relatively large. Most lenders, especially the larger lenders, allow you to overpay 10 per cent of your outstanding loans. If you have £200,000 left on your mortgage, that’s £20,000, you can overpay in a single year, which is a huge amount of cash.”
Since purchasing his home the pair have managed to pay off his mortgage for his family home in less than ten years.
Personal finance expert Martin Lewis has said: “Even a regular overpayment of £50 or £100 a month can dramatically reduce the interest you pay, shorten your mortgage term, and may even overshadow savings interest.
“You can save such large sums of interest by overpaying because it doesn’t just get rid of the debt – it gets rid of the interest you would have paid on that bit of borrowing in the future too.
It’s worth knowing this isn’t a question of whether overpaying your mortgage beats your current savings. It should be a question of whether overpaying beats the highest-paying savings available. Too many people are still earning pitiful rates when much better savings rate are actually available”
The Money Saving Expert site offers advice on overpaying your mortgage here. To read Martin’s advice click here.
