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

The return of the 95% mortgage – what’s available and how much they cost
Mortgages

The return of the 95% mortgage – what’s available and how much they cost

With the chancellor announcing a government guarantee on 95% mortgages in his Budget, products have started hitting the market. Nicole Garcia Merida l…
1 Apr 2021
Why are house prices so high? And what could make them more affordable?
House prices

Why are house prices so high? And what could make them more affordable?

House prices in the UK are at an all-time high – but they just keep going higher. And that’s not because of rich foreign buyers or a lack of supply, s…
23 Mar 2021
Will Britain’s first 40-year fixed-rate mortgage tempt buyers?
Mortgages

Will Britain’s first 40-year fixed-rate mortgage tempt buyers?

Online broker Habito has launched Britain’s first 40-year fixed-rate mortgage. Nicole Garcia Merida runs an eye over what’s on offer.
12 Mar 2021
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

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021