The simple trick that turns £59 a month into £1,842 in savings
This trick doesn't just let you get debt free sooner, it also potentially saves you thousands in interest on your mortgage
Research from comparison site Comparethemarket.com has found borrowers could save a combined £14billion over the next two decades by regularly overpaying.
Paying an extra £59 a month, that’s around 10% of the average monthly mortgage repayment, would reduce the term by one year and four months and save £1,842 in interest.
For first-time buyers the savings can be much bigger.
Overpaying by £68 a month – 10% of a typical £687 monthly repayment on a £142,582 loan – would chop two years and eight months off the mortgage term and save an impressive £6,553 in interest.
Mortgage overpayments
£68
A month extra
2.7years
How much sooner you're mortgage free
£6,553
Saved in interest
Of those who don’t overpay nearly half say they couldn’t afford the extra money and have too many other bills to pay.
Jody Baker of comparethemarket.com said: “While committing more of your wages towards your mortgage can seem financially daunting, making small contributions each month or even a one-off lump sum overpayment could save mortgage holders thousands of pounds in the long term.
“Sacrificing one meal out at a restaurant or regularly bringing lunch in to work from home could make all the difference.
“Now that interest rates have been lowered to 0.25%, overpaying on your mortgage could be seen as a savvy alternative to traditional saving and could result in some huge savings in the long term for homeowners.”
Are there any problems?
Lenders typically restrict the amount you can overpay, usually to 10% of your outstanding mortgage each year.If your lender imposes penalties for overpaying it may be worth considering reducing the term of your loan instead.
This would mean your monthly repayments increase, so in effect you will be permanently overpaying.
But check how much the administration fee would be for this and make sure you can afford the higher repayments going forward – don’t be tempted to stretch your finances too far.
Other ways to save
Whatever your situation, it’s a good exercise to check whether you are on the best mortgage deal.Despite the base-rate drop to 0.25% and many lenders chopping their standard variable rates (SVR), there are millions of people still paying over the odds.
That money could be spent overpaying their loan.
SVRs are not meant to be a long term product. With an average rate of 4.78% they are a lot higher than some of the best mortgage deals currently available that can be well below 3%.
Yorkshire Building Society, for example, offers a three-year fix at 2.09% for those with a 25% deposit and it comes with no fees.
And First Direct has a five-year fix at 2.18% for borrowers with a deposit of at least 25% – and that too comes with no fees.
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