I have written before about our mortgage plans and how they tie into our ultimate dream plan of retiring early. The thought of not having a mortgage payment every month spurs us on too; not having to have that fixed outgoing every month will mean that overall expenses are lower and so our retirement plans come forward that much more.
However, since taking out our mortgage at the end of 2012 and started mortgage payments in 2013, our plans have continuously shifted and changed. In the first year of having the mortgage, we overpaid an average of £700 a month, which, combined with our own mortgage payment, meant that £1,300 a month was being sent to the mortgage. Over the course of the year, we managed to reduce our mortgage from £123,000 to £113,000 which was fantastic (remember that interest is added each month too).
At the beginning of 2014 we decided to shift our focus slightly, so that our overpayments weren’t quite as big, but still made a dent into the original loan. We set our target amount for an overpayment each month at £350, which paid off the interest added each month plus around £60, give or take. So, again, with the mortgage payment and then the overpayment, our mortgage was still heading downwards quite nicely. Half way through the year, we decided to change our plans (yet again!) so that our money could be used in different ways. For the second half of 2014, we decided we’d overpay the interest added each month and that was it. So, our principal mortgage payment was all being used to reduce the amount.
However, we’ve changed our minds again! You can blame all of the finance blogs I read, as 99% say that investing/saving and using the compound interest to our advantage is the best way to go to achieve early retirement. But, as being mortgage free is part of our long term plan, we don’t want to do away with overpayments completely. However, they need to be receded so that we can start to ramp up our savings and look at our long term plans more seriously. So, as I shared on our March Review and April Aims, our new target for overpayments is £120 a month. This will still mean that our mortgage is going down, but we can re-direct our money to other avenues as well. At this stage, I didn’t want to stop our overpayments completely, as we are still aiming to be mortgage free, but this will mean that we can get other aspects of our long term aims off the ground.
I’ve also been playing with some figures, and it looks like we’ve already reduced our mortgage term by 4 years, which is fantastic! We have only been paying our mortgage off for two years, and yet we have doubled the amount paid off so far. Imagine how much interest that has saved us already! That alone makes me want to continue with overpayments, even if they are small.
Hopefully in the future, if I can get any side hustles up and running, any income from those will be split between long term financial/retirement planning and overpayments. So, watch this space!
Related post: Why We’re (sort of) Paying Off Our Mortgage Early
Related post: The Ultimate Dream
Do you overpay your mortgage? If not, why not?
Reducing your mortgage payment by four years is huge. Congratulations. Perfect example of how little sacrifices can make a big impact.
Thank you 🙂 little sacrifices have definitely paid off for us 🙂
Nicola, congrats! I overpaid my mortgage. I start to think of overpaying my mortgage as a form of saving. It cuts future interest and hopefully will mean I am mortgage-free much earlier.
That’s our view too – we’re saving on the interest and will have it paid off sooner 🙂
Way to be flexible! Finances are like organizing. You’re never really done because there’s always something to adjust to make life even better!
That is very true – it’s a continuous learning process 🙂
Yes we did overpay on our mortgage. After I moved to Canada from the UK I had to start over, meaning right back to school. We finally bought a house in 2009 and we paid it in full just last year. It’s been great being debt free but we did balance the money. Some went to investments and the rest to kill the mortgage. It was worth it for us as the mortgage interest rate was a sure thing.
Nice work. Overpaying at the front end of the mortgage makes such a huge difference! They are so heavy on the interest at the beginning.
I like the mix of overpaying and investing, as it derisks your entire life, because if you have the right type of mortgage, it lowers your cash flow requirements should something go sideways in life.
Having the mix of investments and paid down mortgage will be amazing.
The interest is definitely a killer at the beginning – you are so right! And having a mix is what we’re trying to achieve, it’s just about finding that balance 🙂
If your reducing your interest paid to the bank and it is a higher percentage than you would get from stocks/dividends then it might be worth it. Good luck!
This is something I’m seriously looking into after owning our home for 3 years. I don’t want to spend my life tied to a mortgage! You’ve definitely inspired me to get going with it. Good luck with your journey!
I’m coming from the “it’s never too late” camp. I’ve had a mortgage since 2007. I started overpaying the maximum 10% allowed 4 years ago. I save up the lump sum and apply it to the capitol each Jan. It’s brought my remaining term down from 22 years to 9. Saved thousands in interest. I’ll do the same next Jan and look at my remortgage options once my deal ends next March.
The plan is to bring that 9 years down to 3 or in my dreams 2!