‘We were mortgage-free at 45, here’s how you can do it too’

When Adrian Massey was made redundant from his job as a food developer in 2010, the bill that worried him the most was the mortgage. Just over a decade later he and his wife, Tulay, had cleared their debt early, saving themselves £30,000 and freeing up some money to start their own business.The couple had bought their six-bedroom home in Banbury, Oxfordshire, for £280,000 two years before he lost his job.With an interest rate on their mortgage of 6.1%, the couple’s monthly payment was about £1,400. “It felt like a burden; a chain around my neck,” says Adrian, 50. “I started thinking about the best way to pay it down.“It dawned on me what could happen if you overpay even a relatively modest amount. You can really start to make a difference.”When he started his next job he set up a standing order to overpay the mortgage. “We looked at our current income and outgoings, and then, based on our spare cash, we decided how much did we want to put into clearing the mortgage without overstretching ourselves,” he says.They decided they could afford £500 a month. After that, any pay rises they received were funnelled into the mortgage, and the couple would sometimes add a lump sum of up to £2,000 from savings.Analysis of household incomings and outgoings can help gauge how much you can afford to overpay your mortgage. Photograph: AlamyWhen their five-year, fixed rate deal ended in 2013, they remortgaged to a rate of 2.5%, choosing a tracker deal that had no limits on overpayments.The extra they paid each month started to make an even bigger difference. By 2021, Adrian and Tulay were mortgage-free – seven years ahead of schedule.“I know that, purely from a financial point of view, there are advantages to investing more in the stock market because of the returns you get, but the freedom was more important to me,” he says. “It has meant I have been able to invest in myself and the life I want to lead, rather than being shackled to this payment.”The money that used to go into repayments has been used to set up a business, ATM Food Innovations, and Adrian has also upped his pension contributions.“Making the final payment felt really good; it’s a real sense of relief and liberation,” he says. “You know that whatever happens, no one can take your house away.”Every bit helpsWith interest rates rising, it is no wonder that achieving mortgage-free status is a goal for so many.Andrew Hagger, finance expert at Moneycomms, says: “For most people, repaying the mortgage means getting rid of the biggest financial commitment hanging around your neck.“They dream of what they could do with all the extra disposable income: holidays, update the car, home improvements, or retire early. The list is endless.”Clearing your mortgage not only means removing what is likely to be your largest monthly expense, it can also save you thousands of pounds in interest that would have been paid over the full term.And even small overpayments can make a big difference. On a 25-year mortgage of £200,000, with an interest rate of 5%, overpaying by just £20 a month could save you £5,700 in interest and clear your debt nine months early, according to Moneycomms.Overpaying by £50 a month on the same loan would save you £13,400 in interest, and clear the mortgage almost two years early. A £100-a-month overpayment would save £24,530 and clear the debt three years and six months ahead of schedule.Overpayments don’t have to be on a regular basis. You could pay off a lump sums when you come to the end of your deal, or switch to a new lender, or part-way through if the terms of your loan allow it.In the above example, a one-off overpayment of £10,000 could save £11,870 in interest and pay off the mortgage one year and two months early.To make an overpayment, contact your lender. Often it is as simple as making a transfer to the account.Most mortgages let you overpay up to 10% of the outstanding balance each year without charges. Photograph: Rosemary Roberts/AlamyAs your overpayments start to make an impact, you will typically be offered the option to reduce either your monthly payments, or the mortgage term. If repayments are comfortable, choose the latter. This means that more of your money goes towards paying off the debt and you’ll clear the balance sooner.One downside to overpaying is that you can’t easily get the money back if you need it, so ensure you have a savings buffer in case of an emergency; typically three to six months’ of essential outgoings is recommended.“It’s tempting to try to throw every spare penny at the mortgage, but find a balance between making progress towards being mortgage-free and retaining enough flexibility to deal with life’s unexpected costs,” says David Hollingworth, director at the mortgage broker L&C.Understand the terms of your mortgage: most let you overpay up to 10% of the outstanding balance each year without charges. Hollingworth says: “It’s worth checking as early repayment charges can be substantial, often 3-5% of your overpayment, which can erode, or remove, the benefit of the overpaymentr.”Offset mortgages: the best of both worlds?If you want to overpay without locking away your money, an offset mortgage can be a good alternative to a standard deal. These let you link a savings account to your mortgage. The savings balance is deducted from the amount you owe, reducing the amount of interest you are charged. For example, on a £200,000 mortgage with a savings balance of £10,000, you would be charged interest on £190,000 of the loan.The trade-off is that you don’t earn interest on your savings, but they are accessible if you need them; any money withdrawn from the account is simply no longer offset from the mortgage balance. So, in the above example, if you withdrew £2,000 from the savings account, you would then be charged interest on £192,000 of the mortgage loan.Offset mortgages can help you become mortgage-free with more flexibility. Photograph: Chris Dorney/AlamyDavid Hollingworth, director at the mortgage broker L&C, says: “An offset can suit those with substantial cash savings or who receive lump sum bonuses. It allows your cash to work harder without limiting your ability to draw on it when required.”A 25-year, £200,000 offset mortgage at a rate of 5.46%, with a £10,000 savings balance, could save £28,550 in interest costs and clear the debt one year and nine months early, Moneycomms says.It’s worth noting that the choice of offset deals is more limited than for standard mortgages, and typically they have a higher interest rate. L&C currently lists more than 7,500 mortgage products but just 150 of them are offset deals. They are typically about 0.4-0.5 percentage points more expensive than a standard mortgage, says Hollingworth.