Overpaying your mortgage by £59 each month could save you thousands and reduce the term

UK mortgage holders could knock years off their mortgage term and save thousands by just paying a little over the odds every month, new research shows.

According to comparethemarket.com, overpaying each month by as little as £59 – or around 10% of an average monthly payment – could reduce your mortgage term by approximately one year and four months and possibly save you £1,842 on interest.

With nearly eight million mortgage holders in the UK, this equates to a whopping £14.3 billion nationwide.

For first-time buyers the rewards are even greater. Mortgage holders between 25 and 34-years-old could reduce their mortgage term by approximately two years and eight months, saving roughly £6,553 on interest by overpaying by 10%.

Jody Baker, head of money at comparethemarket.com, said: “Whilst committing more of your pay-cheque 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 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 home owners.”

However, many lenders will restrict the amount you can overpay, usually to 10% of your outstanding amount each year, Baker warns.

“If your bank imposes significant penalties for overpaying, depending on your circumstances it could be worth considering reducing the term of your mortgage instead. This will increase the monthly payments so in effect you will be permanently overpaying, though some lenders may charge an admin fee for altering your term,” she added.

How much could you save on your mortgage by overpaying?