Here's a sneaky way to raise some money and shorten the life of your mortgage.
If you're a homeowner, you probably have a mortgage, which most people regard as perhaps the biggest burden in their life. But I've come up with a simple way to raise a few hundred quid a year money that you can use to knock years off the life of your home loan.
My technique is simplicity itself. If you have a mortgage, I'm willing to bet that you have one or more insurance policies linked to it. For example, you may have:
- mortgage protection (life cover that pays off your home loan if you die);
- critical illness cover (protection against heart attack, cancer, stroke and other serious illnesses);
- income protection (long-term sickness cover);
- home insurance (buildings and contents cover); and
- mortgage payment protection insurance (accident, sickness and unemployment cover for your mortgage repayments).
No matter when you bought these policies, fierce competition among insurance companies means that you should be able to slash your premiums by shopping around. Start by getting a few quotes from our Insurance centre.
Your potential saving can be huge if you bought any policies from your bank or building society, or they were 'bundled' with your mortgage. Mortgage lenders are notorious for over-charging for mortgage-related protection - they make billions of pounds a year from selling overpriced policies. In fact, my years of research show that buying these policies from your lender instead of finding a Best Buy usually means paying three times as much as you should! Learn more about my Rule of Three.
So, cutting your insurance premiums could easily release hundreds of pounds a year. I reckon that you could save roughly £250 a year per policy by shopping around. And the larger your mortgage, the more you stand to save. If you're mad keen on "peace of mind", you could be over-paying for insurance by, say, £1,500 a year or more.
Of course, once you've chopped your premiums, what could happen is that the money you've saved gets absorbed into your household expenses, or splurged on trivial spending. But I'd urge you not to go down this route. Instead, why not put this money to work, by using it to pay off your mortgage early?
Once you've worked out how much you've released each month, set up a monthly standing order to your mortgage lender for this amount, say, £50. In other words, use your insurance savings to overpay your mortgage. Please check first that your lender won't penalise you for doing this. Also, make sure that the payment will be knocked off your debt straight away and not stuck in limbo for up to a year, thanks to an "annual interest" mortgage!
A monthly overpayment of £50 may not sound like much, but it will do serious damage to your mortgage. As I revealed in Five Ways To Perk Up Your Mortgage, it will save you thousands in interest and shorten your mortgage by several years. For example, a borrower with a £100,000 repayment mortgage, paying an annual rate of 4.75%, could cut his/her interest bill by almost £11,400 with this £50 a month. Even better, in this example, the mortgage term falls from 25 years to 21½ years, which means an extra 3½ years of freedom!
This article is aimed at homeowners, but tenants can use the same technique to pay off other debts early. Cutting your bills and throwing money at credit and store cards, personal loans and other expensive debts is a great way to free yourself from the millstone of debt.
Finally, I'll leave you with a quote that is over two thousand years old, from a Roman slave who became a free man:
"Debt is the slavery of the free" (Publilius Syrus, 42 BC)
Good luck with giving your mortgage a hiding!
More: Get a better deal today by visiting our Insurance and Mortgage centres.
