How smart freelancers are retiring 10 years early and saving £££s

Discover how making small monthly mortgage overpayments could free up thousands for your business, pension pot, and retirement dreams – while dodging costly early repayment traps

If you’re like most self-employed professionals, you’re probably focused on building your client base, investing in new equipment, or squirrelling money away for those inevitable quiet periods. But what if slightly tweaking your mortgage payments could help you achieve major goals like a mortgage-free life, a relocation, an earlier and affordable retirement or a new venture?

Why freelancers should consider mortgage overpayments

Leon Trotman, Managing Director at debt specialists My Debt Plan, has some eye-opening points for Britain’s freelancers: “Many people don’t realise that overpaying anywhere between £100 to £300 per month on their mortgage could potentially cut their mortgage term by up to 10 years.”

That’s not just about paying off your home faster – it’s about freeing up a decade’s worth of mortgage payments that could go straight into your business, pension, or early retirement fund.

Small, consistent overpayments make a huge difference. Even £50 or £100 extra each month adds up substantially over a 30-year mortgage term and it’s a strategy that is too often overlooked by Brits, leaving them hundreds, if not thousands out of pocket.

–Leon Trotman, Managing Director at debt specialists My Debt Plan

Recent research from Barclays shows that nearly one in four mortgage holders are already cottoning on to this strategy, making average overpayments of £221 monthly. These homeowners expect to slash four years off their mortgage terms – imagine what you could do with all that extra cash flow in your fifties instead of your sixties.

“Small, consistent overpayments make a huge difference,” said Trotman. “Even £50 or £100 extra each month adds up substantially over a 30-year mortgage term and it’s a strategy that is too often overlooked by Brits, leaving them hundreds, if not thousands out of pocket.”

How overpayments work to your advantage

Here’s the clever bit that many freelancers miss: every extra pound you pay goes directly against your outstanding balance, not the interest.

“Each pound you overpay goes directly against your outstanding balance rather than being split between interest and capital,” explains Trotman. “This means you’re reducing the amount you owe much faster than with standard monthly payments.”

Think of it this way, if you’ve got a £200,000 mortgage at 4% over 25 years, overpaying by just £200 monthly could save you around £30,000 in interest payments. That’s £30,000 more for your pension pot, business expansion, or that early retirement you’ve been dreaming about.

The freelancer’s flexibility advantage

Here’s where it gets really interesting. Trotman suggests a strategy that’s perfect for irregular freelancer income:

Essentially, you can hack the system if you’re looking at a new mortgage. Opting for a longer term reduces the monthly rate, and whilst that may seem like you’re committing to a longer amount of time, it’s actually offering you a lot of flexibility.

This approach gives you a lower obligatory monthly payment – crucial when client payments are unpredictable – while allowing you to overpay when cash flow is strong. Had a brilliant month? Chuck an extra £300 at the mortgage. Facing a lean period? Just pay the minimum. It’s financial flexibility that traditional employees can only dream of.

Smart priorities: Clear high-interest debt first

Before you start throwing extra cash at your mortgage, Trotman has some sensible advice: sort out your expensive debts first.

“Before making mortgage overpayments, clear any higher-interest debts like credit cards or personal loans. The savings from paying off a 20% credit card will outweigh overpaying a 4% mortgage,” he points out.

As freelancers, we can sometimes rely on credit cards to smooth out cash flow bumps, but those high interest rates can eat into any mortgage overpayment benefits. Get those cleared first, then focus on the mortgage strategy.

Building your freelancer safety net

Trotman also stresses the importance of that freelancer essential – the emergency fund: “Build an emergency fund covering 3-6 months of expenses first. Once that’s in place, then consider mortgage overpayments.”

Having that safety net means you can make overpayments confidently, knowing you won’t need to raid savings if work dries up temporarily.

Watch out for early repayment charges

Here’s the bit people should not overlook: early repayment charges (ERCs). These sneaky fees can wipe out your overpayment benefits if you’re not careful.

Most lenders allow you to overpay up to 10% of your outstanding mortgage balance each year without penalties. Go beyond this, and you could face charges of 1-5% of the overpayment amount. On a large overpayment, that could run into thousands.

To avoid these charges:

• Check your mortgage terms for the annual overpayment limit
• Spread large overpayments across different years if needed
• Consider switching to a more flexible mortgage when your current deal ends
• Some lenders reset the 10% allowance each year, so time your payments strategically
• Long-term vision: Earlier retirement and business growth

Let’s envision a picture of what this strategy could mean for your freelance career. By cutting even five years off your mortgage term, you could:

• Redirect thousands annually into your pension from age 55 onwards
• Invest more heavily in business development during your peak earning years
• Take more calculated risks with new ventures, knowing your housing costs are lower
• Achieve financial independence earlier, giving you the freedom to be more selective with clients

Making overpayments work even in tough times

If you’re in a lean period, the idea of mortgage overpayments might feel like a luxury you simply can’t afford.

However, even small actions during tough times can set you up for success when things improve. Consider starting with just £25-50 monthly overpayments when work is steady – that’s often less than a weekly coffee shop habit, yet it still chips away at your mortgage balance.

Alternatively, commit to putting any unexpected windfall. For example, that surprise payment from a late-paying client, a tax rebate, or even your birthday money – straight onto the mortgage instead of letting it disappear into general spending.

It’s a process that can work with your cash flow. Every pound you manage to overpay, even sporadically, is a pound less you’ll pay interest on for potentially decades. When more work comes, you can ramp up your overpayments knowing you’ve already have the habit and systems in place.