Homeowners across the UK could save thousands, or even tens of thousands of pounds, by making one simple change, according to a mortgage broker. This strategy is accessible to almost everyone with a mortgage, yet many are unaware of it or do not fully grasp the potential savings available.
Small overpayments, big impact
Harry Goodliffe, director of Winchester-based HTG Mortgages, said: “When we speak to people about the full impact of even small mortgage overpayments, they often look on in disbelief. But the savings over the lifetime of the mortgage can be significant, with even small but regular overpayments often shaving off thousands of pounds in interest payable.”
Most lenders allow borrowers on popular fixed-rate mortgages to overpay up to 10% of the outstanding balance each year, although in practice, the vast majority overpay far less than that. Goodliffe explained: “Even if you’re overpaying by just £50 or £100 a month, that can translate into serious savings over the term of the mortgage.”
Options for overpayments
When making overpayments, most lenders give borrowers the choice of reducing their monthly repayments or shortening the mortgage term. Goodliffe offered a tip: “If you’re keen to reduce your mortgage term, leave your mortgage payments the same if you have managed to remortgage onto a lower interest rate — because you have more equity in your property, for example. The beauty of this is that you’re not spending any more money a month than you were beforehand, but you are making potentially massive inroads into your mortgage balance and could be mortgage-free a few years early.”
Check your lender's limits
Goodliffe advised that people overpaying should always check the maximum amount they can overpay each year with their lender. “Lenders are more than happy for you to make overpayments, but equally interest is how they make their money, so they don’t want you to overpay too much and doing so can trigger penalties. But most borrowers will be able to find out exactly how much they can overpay each year simply by logging onto their mortgage online.”
Financial buffer first
Before making overpayments, Goodliffe recommended ensuring a financial buffer is in place to cover unexpected outgoings or loss of earnings. “Making overpayments can be a massive boost financially, but it’s almost always wise to have an emergency cash fund in place that will cover at least three months of living expenses or a significant unexpected bill. Being financially secure today is as important as paying off your mortgage a year or two early.”
