Paying off mortgage early UK - WHY IS IT A GOOD IDEA NOW

Paying off mortgage early uk, is it a good idea or should I divert the money elsewhere? In this video, we are going to look at the numbers behind paying off mortgage early uk and some key considerations
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TIMESTAMPS
Intro - 0:00
Context - 1:07
Interest Rates - 2:19
Overpayment Calculator - 3:44
Important Notes - 8:17
Final Thoughts - 10:10
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.
This description contains affiliate links that allow you to find items mentioned on this video and support the channel at no cost to you. The affiliate links allow me to earn a small commission without any extra effort.

[@peterkomolafe]

USEFUL LINKS The Calculator - www.halifax.co.uk/mortgages/mortgage-calculator/overpayment-calculator.html Sprive (Mortgage Free Faster) - sprive.com/ My previous video on this - kzbin.info/www/bejne/pmTamGprerethbs

[@mikeee7425]

I did loads of overtime for a few years, and pumped all the extra money into my mortgage, I’m now mortgage free and I’m only 45! Happy days😁

[@samali4327]

How has your life changed?

[@lazycarper]

@@samali4327 he has more money to enjoy his life, he has less debt, give less stress, ,he owns his own home for life, whats your point lol

[@samali4327]

@@lazycarper no point my brother I was interested in how it has affected him. It wasn't a criticism. I'm all for paying it off early.

[@jeremyr8793]

Dam maybe i should do that since i have the option to do overtime. Just hard coz feels like you have no life lol nut makes sense

[@samali4327]

Have you found that your savings have gone up as well?

[@james2614mc]

Even if overpaying isn't the most financially beneficial option, its great to do as its a guaranteed return and you'll be mortgage free sooner

[@peterkomolafe]

Very true

[@Joe-pt5lz]

FYI in the U.K. all overpayments legally go forwards the amount not the interest as a standard principal

[@aurelieaitbouaoune26]

I can’t believe how good you are at these videos…..you’re a long way from the young guy I knew years ago! Well done, you should be very proud of yourself, such great achievements! Xx

[@peterkomolafe]

Thanks Aurelie. It's been a long time and a long road, hope you and the family are well.

[@Mark.Claughton]

Great video , definitely given me room for thought

[@peterkomolafe]

Glad it was helpful!

[@callumclark4021]

Interesting looking back at this in 2024- inflation was bad but nothing like what was predicted here.

[@marci3659]

mortgage freedom gives peace of mind which is invaluable . I am so thankful that I have achieved that last year with a £90K lump sum. I am no longer caught in that frantic interest rate rise circus of 2008.Thank God.

[@pseudocode6506]

Out of interest, why wouldn't you have the same peace of mind if you had a growing investment portfolio that was worth £90k? You'd know that you could cash out at any time and pay off the mortgage if you wanted to, wouldn't that give the same peace of mind?

[@marci3659]

@@pseudocode6506 The stock market does not guarantee returns on your money. However with my house now fully paid off I am not having sleep less nights wondering how high the interest rates will rise..instead I can use that extra money from mortgage payment and invest in stocks and shares and see the positive side to interests rate rises in my savings accounts as I sleep soundly at night and grateful that I am in this position now compared to 2008. For me its a no brainer ,my peace of mind is priceless and I can also confidently invest and save £2000 per month , with a healthy 12 month emergency fund, the best of both worlds

[@ALUMINUM20]

Hi Marci, Can I please ask what additional costs you had to pay in order to pay off your mortgage in one lump sum? Early Cancellation fees etc. I'm thinking of doing the same thing and then investing the mortgage payments which I would have been paying with the added security that the house is paid off. Thank you.

[@marci3659]

@@ALUMINUM20 Fortunately I didn't incur any additional costs ,cancellation or early exit fees from my lender. With interest rates rising I am happy to be spared the extra payments and uncertainty of knowing how high repayments will go . I wish you success in paying off your mortgage and investing the saved monthly payments.

[@ALUMINUM20]

@@marci3659 Thank you for your reply! Yes, I think I will look further into doing this. Have a good day 👍🏼

[@rikardsaje]

I was mortgage free a few years ago and it felt quite good but you just have a lot of money tied up. I remortgaged to buy my commercial premises which was costing £1000 per month in rent where the mortgage is now £350 per month. For me if you're going to invest that money instead of paying off the mortgage you can get it working for you plus capital growth in another property. I'm going to do it again to buy another btl. I do agree that if it's going to give you piece of mind then pay it off. Good video.

[@peterkomolafe]

Sounds like you should be speaking with Lawrence also in the comments section. Nice way to think outside the box.

[@IonutNedelcu]

This is very good advice! We have just received our mortgage offer and we are looking into ways of saving as much as we can! Cheers!

[@peterkomolafe]

It’s amazing how little overpayment make a difference. If you noticed the 200 a month overpayment had the same effect as 100 a month plus a 10k lump sun

[@IonutNedelcu]

@@peterkomolafe yes, I did it with our mortgage and it works out that a £200 overpayment would save us £35000!

[@lawrencer25]

Cant beat mortgage free 👍👍👍🥂🥳

[@newyork5472]

thank you❤

[@K114LED]

Can you elaborate on, “make sure Capita is paid off and not mixture of both Capita and interest”

[@sherazzahoor5972]

I’m a mortgage advisor, I agree with you but I wii ok LUd say the rates are still relatively low so you may want to consider using the money to invest rather than pay off a debt that you have on a low rate😎

[@oakashthorn5714]

What happened to my mortgage if world war 3 kicks off & I can’t get work to pay it?.

[@MrDavepassey]

But the saving is after 20 years, if you invested £100 a month over 20 years you would make more than the mortgage interest saving.

[@frusciantesplectrum7980]

Not to forget that the savings are made based on you’re current rate when we all know that future payments will be compounded on a larger interest rate. Therefore it’s way better than any savings account

[@juliadavison]

I am the paid off my mortgage last month, and just had an letter from nationwide bank today saying my mortgage is paid now and get my title deeds very nice feeling with no mortgages at 45 and to contact the land registry for title deeds now for my house very happy now mortgage free life and planning an trip to the USA 🇺🇸 in 2025 to florida but I have overpaid for 10 years so paid it off 10 years earlier than planned as I paid an extra £300 per month on my mortgage

[@peterkomolafe]

Congratulations Julia. That’s also my goal in the next couple of years

[@gohstkilla5160]

Just paid my house 🏠 off 20 years early.J bought the house for 110.00 put 16 000 down and had 26 year mortgage. Am 50 years old and the interest rate was low when j bought it 1.6%.my deal was up and just said fk it pay it off as the interest was 2 high and would double my payments.took 60.000 paid the.exit fee and now I hv less.than a grand in the bank

[@D00dles]

How do I ensure that lump some is going towards capital and not spread?

[@rehantayyab82]

Suppose i have 125k loan and 30 years mortgage , but i pay off everything at year 10 ( 20 years earlier) then only i need to pay extra at that point is early payment charge to finish this cycle or some other legal requirements as well ?

[@Andromedaxterr]

its gonna be hard to overpay especially with rising energy bills and council tax bill, rising prices etc

[@peterkomolafe]

Not an option for everyone but for those who ask the question, this is the answer

[@venturi210]

A lot of mortgage companies, mine included, put a limit on overpayments. I try to pay as much as I can afford, but with bills rising, I'm going to find it hard to stay on track. If I pay more than 10% of the value of my mortgage on top of my regular payments, they is a penalty fine. You can't win!

[@peterkomolafe]

Yes they do. It typical 10% or 20% of the outstanding or original balance. The latter is better but you need to check with your lender for which one they apply.

[@MrDavepassey]

You can pay up to the point where you would face a penalty and then anything over that you can put in savings. Then when your fix is finished you can pay a lump sum with no penalties and then fix for the remainder.

[@samali4327]

They have it all thought out

[@exerciseisantidote9337]

It's cheaper to pay the charges after the 10% than paying the interest itself. All depends on how much you owe and how much % the charge is on your balance. Santander charges 3% after the 10% overpayment

[@samali4327]

@@exerciseisantidote9337 it isn't fair though is it?

[@ALUMINUM20]

First time I've seen one of your videos and it is very helpful, so thank you very much! Quick question, if I have £75,000 left on my mortgage (and no other debts) and have £85,000 available, would you pay it off in one hit? The interest rate will undoubtedly rise when I come out of my fixed rate of 3%; therefore, I could save a lot more on the interest in the long term as my monthly payments will be set to increase significantly.

[@peterkomolafe]

If having the mortgage paid off would be a weight off your shoulder, I would do that. The sense of freedom and security you'll feel will be world changing mate. Better than dealing with the uncertainty of interest rates.

[@ALUMINUM20]

@@peterkomolafe Thank you very much for your reply, appreciate it ! I think I will do it. Have an amazing day and I hope your channel gets the subscribers it deserves 👍🏼

[@clipsyosei5353]

Thanks for this wonderful video. I need to talk to you . Regards

[@dicamillo9]

Am I missing something? If I have a 1% fixed for 5 years, shouldn’t I rather put £10k savings in a 2% savings account (ideally ISA) until the end of the fixed term rather than early repayments? That way I can earn more interest on it than I am paying and when I need to remortgage a higher rate I can then use the £10k to reduce the mortgage then. Additionally, isn’t the effect of inflation on the £10k irrelevant as my mortgage amount isn’t affected by inflation? (In real terms the amount of the mortgage is being reduced by inflation at the same rate as the £10k).

[@peterkomolafe]

2% interest rate vs 10.1% inflation means you lose money in real time. The 10k overpayment, if you're permitted, could save you you significantly more on mortgage interest than the interest you would get from a 2% savings account.. Ultimately, it's your choice, you may feel more comfort holding on to the cash, especially in times like this.

[@davidwebb2318]

@@peterkomolafe Sorry but you are just completely wrong on this. Inflation reduces the value of your debts. Therefore all the time interest rates are below the inflation rate the bank are effectively paying you to borrow their money. You really shouldn't be giving financial advice if you don't understand this. It is really basic.

[@dicamillo9]

@@davidwebb2318 @conversationofmoney yeah this seems to be very obviously wrong information in your video. Why would I pay off money that is earning me more interest than the interest I am paying on it. The £10k will still pay off £10k of my mortgage even if inflation is 110%. I am really not meaning to be rude but this is terrible information. Inflation reduces your debt. And while interest rates continue to rise I could earn a risk free return on my savings which will later be used to payback my mortgage when I need to refix. I am not losing money in real time as it is effectively not my money I am simply using the banks debt to earn myself a higher rate of interest than the bank is charging me. You should correct your video before costing people a significant amount of money. Don’t forget I can compound the interest that I am earning.

[@davidwebb2318]

@@dicamillo9 You are right. These videos will lead people to make big financial mistakes. People shouldn't give financial advice if they don't understand the basics of how interest and inflation work.

[@FinancialHealth-ku1ry]

@@dicamillo9 Pete's information is flawed. This is bad

[@fatoumatak-t2034]

Hi How do I check that my overpayment is going towards paying my capital and not being split between capital and interest? Thank you

[@peterkomolafe]

With your lender

[@philipreeves5465]

The ReMortgage SCAM Do mortgage lenders "Front Load" in the UK? Ie you pay more interest than capital in the first say 12 years on a 30 year term? Or is this practise NOW illegal? The reason for asking is if we renew our mortgages every 2 years with a different lender to get a better deal, does the clock of interest loading at the start restart

[@peterkomolafe]

Yes they do. It's called amortisation

[@philipreeves5465]

@Peter Komolafe thanks for the fast reply. Right, so this could be an issue for us all. Example In Jan 2017, I took out £100,000 mortgage at 2% for 30 years. So £20k interest will he added on to this loan. Now, if the system was far and as I thought it was, the interest would be divided over the 30 years, which is 360 months, is £55 a month extra. £333 capital and £55 interest charge. Total mortgage of £388 However, if front loading is still practised in the UK, then it would be more like £250 a month interest and £80 capital with the tipping balance being around the 12 years mark. So, if I then remew in 2019 on a better APR with a new bank, this tipping period resets back to 12 years. If I repeat this cycle every 2 years, I'll always be pushing this tipping period further and further into the future and never paying more capital than interest? Is this right ?

[@RM_BURNER]

Good stuff! Question, if you were remortgaging today, how long would you look to fix your rate for? 2 years, 5 years, or more?

[@peterkomolafe]

With the way rates are likely to go, I would consider fixing for the longest term possible

[@cx6894]

How are you people getting 2% 3% now? I have a 6.64% mortgage as of today, fixed it for 5 years, I've decided to overpay for sure.

[@peterkomolafe]

this video was a few weeks ago mate

[@mcmilesuk]

I have a small mortgage but if I pay a lump sum I'll be saving £2600.interest cheers mate.

[@peterkomolafe]

Glad it was helpful and thanks for watching.

[@roberthenderson4332]

I get around £220 a month in dividends, would this be wise to pump this into our mortgage too? Thanks for your thoughts,

[@peterkomolafe]

You could make it as an overpayment, yes.

[@pseudocode6506]

But with high inflation the value of the pound is dropping significantly. Let's say your mortgage is £1000 a month. If you overpay £1000 today, you are spending £1000 of money in today's money so that you don't have to pay that £1000 in 25 years time. But, in 25 years time, £1000 will be worth half (if you're lucky) of £1000 in today's money. You're spending high value pounds today to avoid paying low value pounds in the future. Unless the interest rate exceeds the inflation rate (which is unlikely) you're just throwing money away as you're basically exchanging today's pounds for future lower value pounds.

[@peterkomolafe]

Are you really going to say all that and not give an alternative solution?

[@pseudocode6506]

@@peterkomolafe sure: - Use the money on home improvements, extensions or even a nicer house. Any money invested in the house will increase the resale value of your house and by doing it today, instead of in future, you are using your high value pounds from today instead of spending more lower value pounds for the same renovation in future. And the increased house price will benefit from long term house price increases (which historically scale well above inflation) - Buy a second property and rent it out: Say you borrow £250k for a £300k property, it costs you £50k up front deposit. If the house price increases as little as 10% over 10 years (which is very conservative historically but let's assume the housing slump is here to stay for at least 5 years), you've made 30k on your £50k. As long as the rental income breaks even on the expenses you are paying off the mortgage and gaining equity. They great thing about property is that you earn money on the value of the property, not the value of your initial investment. If the house price increases by more per year than the total cost of the interest charged over the same period you can make money on a house that has been empty over the entire period. Rent it out and you'll be even better. - Invest. Mortgages are ~5% at the moment. 5% is a fairly standard return on safe investments so will be equal to the interest you pay on your mortgage. But, the compound interest calculation works both ways: mortgage interest goes down over time as you pay it off while your investments will go up. By putting it in an investment you get the compound effect that you don't by overpaying the mortgage... so even if both are 5% the compound effect on the investment makes it a better long term prospect. - Stick it in your pension, get the tax benefits from doing so and the money invested via your pension scheme. Has the same problem as overpaying the mortgage though, it locks away your money in a place you can't get to it in an emergency. - Enjoy the money. Spend it on things you actually want to do rather than scrimping to pay off your mortgage as early as possible. To reiterate my point above, consider wage inflation as well. Your mortgage might be 1/4 of your income today, but as wages (slowly) increase the monthly cost won't change much so the same monthly payment might be 1/8 of your take home pay by the end of the term. And that's assuming you don't get higher wages in real terms. As your career progresses and you move to higher positions you might find that 1/4 of your income becomes 1/16 of your take home pay. Pay off your mortgage early with 1/4 of your take home pay today so you don't have to pay 1/16 of your take home pay in 20 years time. Good idea? As a personal example, I bought a flat 10 years ago. At the time the monthly payment of was about a third of of my take home pay. Now with wage inflation combined with career progression the mortgage on that flat is about 7% of what I take home each month.

[@davidscott2298]

If you're worried inflation will be high and sustained for a decade then fixing a 3% mortgage for a decade in a 10% interest environment is like borrowing cash at - 7% in real terms. High inflation may crash stocks making stocks cheap again when we get through the other side

[@peterkomolafe]

Very true. I had a video about long term fixed deals a while back and almost everyone in a subsequent poll voted it to be a bad deal.. how things change

[@marksmallwood4938]

Lots of talk about savings accounts but nothing about paying into a pension. If you are a basic rate tax payer and you put £100 into a pension it becomes £125 before any growth. If you are a higher rate tax payer then you get another £25 rebated via self assessment. It’s emotionally rewarding to be free of debt but I’d personally go for a blend of overpaying and ensuring I make decent pension contributions so they have as long a time in the market to benefit from compound growth. Your mortgage debt gets reduced by inflation anyway. For example when you think what houses cost 20-30 years ago they were peanuts and so were the mortgages in todays terms. The same will be true for us.

[@lancegordon2829]

Right now my mortgage rate is a negative figure once inflation adjusted, so I'm effectively earning a return on my mortgage balance. Even if I ignore this, my instant access savings rate is now higher than my mortgage rate, with the premium on my savings rate likely to increase short term. I cannot see any benefit to sacrificing liquidity to earn a lower return. The only people who will benefit from overpaying in this scenario, are those who know they will likely spend the cash on discretionary expenses, unless they remove the temptation by locking it into equity. Nothing wrong with knowing yourself and making the right choice for your individual circumstances, so long as you understand the choices you are making.

[@peterkomolafe]

What mortgage are you on? Sounds pretty good

[@lancegordon2829]

@@peterkomolafe Lloyd's 5 year fix, locked in the rate back in March, so is much lower than would be available now. My mortgage rate is 1.93% and instant access savings from Gatehouse pays 2.1% (expected profit rather than interest, but effectively the same). I think 2.5-3% savings rates could be seen in the next 6 months so this will increase the rate gap even more.

[@BillHrpr]

Bro your sound is too quiet. Hard to hear you with headphones on.

[@christopherhubbard602]

Landlords can't pay off their mortgage as they will be hit by a tax bill

[@peterkomolafe]

I was referring to residential mortgages not buy to let’s in this one

[@Shiva10883]

Excellent video 1 step: clear all credit card, other debt..come out of banking system except mortgage and utilities 2 Step: Clear mortgage as investment is risky for a guy like me 3 Step: No mortgage, No debt... invest and invest I am currently on step 2.. and need 6 more years to move to step 3....I am slow and conservative..just want to get out of this banking credit , letters, misery

[@knighthawk3559]

You are wrong. Put you overpayment into a stock and shares isa (up to £20k per year). Choose low risk index or mutual funds. Money grows tax free. When you have enough you can draw and pay your mortgage off or decide to keep the investments. ☺️

[@peterkomolafe]

Ok then mate. Good to know your approach works for everyone. Duly noted

[@peterkomolafe]

Thanks .. good to know your approach works for everyone. Duly noted