Introduction:
A mortgage is one of the major expenses every month for most families. For many of us, the feeling of holding a significant debt for 30 years is frightening. Of course, owning a home is preferred to renting in most instances, so having a mortgage is very much just a fact of life in our culture. Let’s discuss how to mortgage free living.
How to live mortgage-free?
According to government statistics, the average mortgage holder paid little more than £8,000 in mortgage repayments in the previous year. Once your mortgage is paid off, you will have a significant increase in the amount of money available in your bank account each month.
You will also save a small sum in interest payments as a result of this. According to the Council of Mortgage Lenders, the average mortgage debt in the United Kingdom is £123,000 per household. According to the average interest rate of 2.63 percent, the average homeowner paid £3,154 in interest on their mortgage in the previous calendar year.
As a result, making the effort to pay off your mortgage early will save you hundreds of pounds in interest payments. Here are four steps to living without a mortgage.
1. Bring your interest rate down
The lower your interest rate, the sooner you’ll be able to pay off your mortgage. This is because, if you’re paying less interest, you’ll be able to afford to pay off a larger portion of the original loan amount.
For example, a person with a £123,000 mortgage at an average interest rate of 2.63 percent would make monthly installments of £560. With a 1.63 percent interest rate, their monthly repayments would be reduced to £499, saving them money. The alternative is to refinance at the lower rate and keep their monthly payments at £560, which would result in three-and-a-half-year savings on their mortgage and a total savings of £3,686 in interest savings.
2. Remortgage on a regular basis
By shopping around for a new mortgage arrangement on a regular basis, you can ensure that you are always paying the lowest interest rate available. Set a reminder in your calendar for two months before your existing mortgage deal expires to begin the process of finding a new mortgage offer.
Remortgaging is also recommended since your loan-to-value (LTV) ratio will vary every few years, which means you may be able to obtain a cheaper interest rate even if rates in the broader market haven’t changed significantly.
Consider the following scenario: you purchased a £250,000 house with a £200,000 mortgage. When you took out the loan, your loan-to-value ratio (LTV) was 80 percent. This means that the bank has provided you with a loan for 80 percent of the value of your home.
After three years, you would have paid off £18,000 if you had taken out a 25-year repayment mortgage at a 2.5 percent annual interest rate. Assuming a 5% annual increase in the value of the real estate, your home would be worth £290,000 today. It follows that your LTV would have been reduced to 63 percent as a result.
3. Make extra payments on your mortgage
Overpaying your mortgage is the single most important factor towards paying off your house loan early and becoming debt-free sooner rather than later. Step one demonstrated that even a small increase in your monthly mortgage payment of £60 might get you three years closer to being debt-free.
Consider increasing your monthly direct debit by an amount that is manageable for your financial situation. You might pay off your debt in one big sum. Consider the impact of a £150,000 mortgage with a 25-year term and a 2.5 percent interest rate on a mortgage overpayment. You would save £15,311 in interest if you made a £20,000 overpayment.
In addition, you would have paid off your loan four years and four months earlier. Alternatively, paying an additional £150 per month will save you £13,000 in interest over the course of the loan. You would also be able to pay off your loan nearly six years earlier. United financial freedom is a platform that helps you to know united freedom financial.
