I paid my mortgage off early – now I regret it as I have ZERO cash

A MAN who spent six years paying off his home loan early has shared how he regrets becoming mortgage-free.

The 35-year-old and his wife put all their savings towards paying off their mortgage earlier than planned, reaching their goal two years ago.

The move freed up cash which they spent on eating out, holidays and buying a car.

Instead of mortgage repayments, they had around £900 a month spare to "live a more carefree lifestyle" he said in a post on Reddit.

But a change in circumstances after Covid hit has left him regretting paying the loan off early.

The couple, who now have a child, have been left with nothing to fall back on as all their money is tied up in the property.

Sharing on the UK Personal Finance forum, the anonymous homeowner said: " We moved to a bigger property in March this year and took on a relatively modest mortgage again.

";My wife was made unemployed during the first Covid lockdown and decided to try being self-employed.

"Having had our first child in August, living on a single wage plus SMP [statutory maternity pay] with a mortgage, I wish we’d been more financially savvy and invested a larger proportion of our disposable income.

"Ultimately we’re currently left with no real savings and a slight monthly deficit."

Looking back he believes that they would have been better off investing a portion of the cash after they had fixed their mortgage rate for two years with interest of only 1.69%.

He did not say how much the mortgage was or the value of the property.

Previously they took out a five year fixed deal in 2012 at 4.99%, but repaid most of the cash when they were on the lower rate.

"There are certainly a lot of people far worse off than us, but at the same time we’d probably be far better off ourselves had we not so aggressively paid off our first mortgage." he said.

"Life is currently quite challenging when perhaps it need not be." 

He added that he probably would have "gone down a slightly different path" if he'd spotted some of the advice in the forum about "paying down debts and investing your savings".

"All that being said, we could get out of current money squeeze by releasing equity from our current property but haven’t done," he added.

"Maybe deep down despite knowing the best financial option is probably investing, I want to be mortgage free again." 

Should you pay off your mortgage early?

Anyone thinking of paying off their mortgage early should think about it carefully and follow some golden rules, said Laura Suter, head of personal finance at AJ Bell.

She said: "The big thing you need to bear in mind is that once the mortgage is paid off it’s quite difficult to get that money back, you’d need to take out a new mortgage to release that money from your house – so think it through before you make the decision."

Homeowners should pay down other expensive debts first like credit cards, overdrafts and store cards.

When paying off debt it's sensible to pay off the ones with the highest rates first so you're not wasting money on interest.

It's also sensible to save a pot of cash for emergencies.

Working couples should have at least £11,000 in savings to be able to survive six months of unemployment, experts have warned.

Homeowners should also check they are getting the lowest mortgage rate they can regardless of if they are planning to pay it off early.

For those that decide on a goal of being mortgage-free, being on a low rate means overpayments will go towards paying off the actual debt, rather than the interest, said Ms Suter.

“Once you’ve got all these needs met you need to decide whether your priority is being mortgage free or whether you want to build up additional savings," she said.

"With mortgage rates so low at the moment it’s likely you’re not paying very high interest on your debt, so you might decide you can make more money by investing the cash.

"Conversely you might think that the milestone of being mortgage free matters more to you."

Savers should beware keeping all their money in cash, however, as interest rates on savings are at record lows, while inflation is over 5%, which can eat away at your money over time.

If you don't invest the cash then you're likely better off paying off your mortgage debt.

“What’s more, over longer periods of time those investing the money benefit from the beauty of compounding, which means the interest generated can outstrip the interest you’ll save by paying off your mortgage early," said Ms Suter.

What to check before overpaying your mortgage

If you do decide that you want to pay off your mortgage there are a few things to check first.

Most mortgages have rules about how much you can overpay - and their could even be a penalty to pay if you do it wrong.

It's best to check the terms of your mortgage or ask the lender before you start overpaying.

"Most mortgage companies allow you to repay up to 10% of the outstanding balance a year, although some allow more. You also need to check your overpayments will pay off your mortgage debt, not just reduce your monthly payments," said Ms Suter.

She added that another option if you need to re-mortgage anyway, is to "reduce the term on your mortgage, which increases your monthly payments and effectively locks in an overpayment and cuts the overall interest you pay".

"Anyone choosing this route needs to be certain they won’t need access to the money for anything else.”

Overpaying your mortgage by just £50 a month could save you thousands of pounds in the long term.

MoneySavingExpert's  can help you work out how much you could save if you overpay your mortgage.