Overpay your mortgage to cut thousands off the cost of your home

If you overpay your mortgage every month you could knock years off your repayment period and save thousands on the cost of your home.

Many of us dream of the day we are free of our mortgage. But have you ever considered cutting the time it takes to be mortgage-free by increasing your repayments? The repayment your lender tells you about is the minimum you have to repay each month. Most of us never consider paying more, but doing so could shave thousands off the cost of your home.

“Overpaying can wipe years off your mortgage and saves you paying the interest you would have accrued by having the debt for longer,” Rosita Janulion, a mortgage expert from Habito, told the Daily Express. If someone with a £200,000, 25-year mortgage paying 1.89% interest overpaid by £100 a month, they’d “save over £7,000 in interest alone and become mortgage-free three years and three months earlier”. Anyone can overpay on their mortgage, but there may be a limit on how much extra you can pay. If you are in a deal for a set period – a three-year fixed rate, for instance – you can usually only overpay a maximum of 10% of your remaining mortgage balance each year.

If you go beyond that you could trigger an early repayment charge that negates the benefit of overpaying. Anyone who isn’t in a fixed period may be able to overpay by as much as they like, but in that case you should also look at whether you can cut your costs by remortgaging onto a lower interest rate as you are likely to be on an expensive standard variable rate.

A different approach

Overpaying your mortgage doesn’t have to mean increasing your monthly payments. If you are due to remortgage you could move your home loan to a lower interest rate, but keep your repayments the same. Martin Lewis of Moneysavingexpert.com gives the example of someone who paid off their mortgage nine years early and saved around £54,000 by remortgaging to a lower interest rate, but not reducing monthly repayments.

For example, if you had a £200,000, 25-year mortgage with a 3.5% interest rate your monthly repayments would be £1,002. Remortgage to a 2% interest rate and your minimum repayment would drop to £848 a month. By keeping yours at £1,002 you could shave four years and nine months off your mortgage term and save £10,937 in interest.

Another option could be to sign up to new website Acceleratemymortgage.com. It works like a cash-back website, but your earnings are used for your mortgage. “You search it for a retailer and if you click through and buy something, you earn a percentage of the spend... as an overpayment to a mortgage lender,” says John Fitzsimons in The Sunday Times. Before you sign up and start spending, make sure your mortgage lender works with Acceleratemymortgage.com. Also check whether it has a minimum overpayment amount.

Recommended

Cash-poor homeowners should beware of equity-release
Equity release

Cash-poor homeowners should beware of equity-release

Struggling savers should think twice before using equity release schemes to tap their homes for money.
24 Nov 2020
Beware: mortgage payment holidays could cost you
Mortgages

Beware: mortgage payment holidays could cost you

Taking a break from mortgage or credit-card debt could ultimately cost you more in extra interest than the money you save.
26 May 2020
What can you do while the housing market is on ice?
Property

What can you do while the housing market is on ice?

Ruth Jackson-Kirby answers a few pressing questions about the current situation in the housing market.
17 Apr 2020
Beware: a mortgage holiday is not free cash
Mortgages

Beware: a mortgage holiday is not free cash

You are piling up debt for the future if you pause your mortgage payments, says Ruth Jackson-Kirby.
6 Apr 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
When will the US stockmarket bubble burst?
US stockmarkets

When will the US stockmarket bubble burst?

With US stocks more expensive than before the Wall Street crash of 1929, there are growing signs of “mania”. But what will push markets over the edge?
22 Jan 2021