Small but regular mortgage overpayments could help homeowners save thousands of pounds over the course of time, with first-time buyers benefitting the most.
This is according to number crunching carried out by comaprethemarket.com, which established those just getting onto the property ladder could save nearly £7,500 in interest and knock six years off their terms by overpaying £100 a month.
The price comparison site based this calculation on a homeowner with the average UK mortgage debt of £140,000 over a 30-year term, yet it said the principle applied to anyone with a mortgage.
James Padmore, head of money at comparethemarket.com, said: “Even though committing more of your pay cheque towards your mortgage can seem financially daunting, modest but regular overpayments can save you thousands of pounds in interest over the long run.”
Overpaying has huge benefits to borrowers on a fixed-rate mortgage deal but for those on their lender’s Standard Variable Rate (SVR) the savings could be even more generous – potentially up to £21,000 based on the scenario above.
However, experts advise anyone currently on their SVR an even more effective way to save money is to remortgage to a new deal.
James explained: “Households on an SVR are likely paying even more in interest and have more expensive monthly payments. If you are on an SVR, instead of overpaying on your mortgage, you could switch to a fixed-rate product which is usually cheaper.
“You can then use that extra money to make overpayments and reduce your term even further to avoid paying unnecessary sums in interest.”
A few things to consider…
Anyone considering overpaying is advised to check with their lender first. James explained this was because there could be an overpayment limit on their current mortgage.
This can be around 10% per year of the total outstanding amount – but the exact proportion can vary from lender to lender.
What about if you want to overpay but are struggling to find the additional money?
James added: “After the year we’ve had, not everyone will be in a position to make monthly overpayments.
“There are options for those who have struggled financially and need to be careful with outgoings. Borrowers could put overpayments into a savings account and pay a lump sum at the end of each year instead of paying the mortgage lender monthly.
“This gives greater flexibility and means any cash is still within easy access in case of emergencies or rainy days. Any remaining money saved at the end of the year to pay down the mortgage will still make a considerable difference over the long term.”
Overpayment savings (based on average mortgage debt of £140,090 and £100 overpayment) source: Comparethemarket.com
| Interest rate | 1.52% (fixed) | 3.61% (SVR) | ||||
| Mortgage term | 30 years | 25 years | 20 years | 30 years | 25 years | 20 years |
| Interest savings | £7,492 | £5,274 | £3,423 | £21,568 | £14,755 | £9,290 |
| Reduced mortgage term | 6yrs 2 months | 4yrs 5 months | 2yrs 11 months | 6yrs 6 months | 4yrs 7 months | 3yrs |
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