Money expert explains why some couples may want to consider overpaying on their mortgage
Martin Lewis has offered tips to households.(Image: ITV)
Martin Lewis says millions of homeowners may want to consider a simple change which could help them pay off their mortgage years early in some cases. The money expert has issued advice to families about how they may be able to improve their finances.
He says overpaying on the mortgage – paying off more than the usual monthly amount – could leave couples better off in the long run. But it is important for people to check their individual circumstances and how it will impact them long term before making any significant financial decisions.
Mr Lewis issued some tips which could work for some households. He shared how one homeowner had saved £35,000 and is set to pay off his mortgage 10 years early because of overpaying.
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The money expert explained: “If your mortgage rate is higher than you can earn in savings, overpaying adds up. Let me oversimplify a little… £10,000 saved at 4% earns £400 interest (£320 if basic-rate tax is taken off), yet use it to overpay a 6% mortgage and it saves you £600 interest. So using the savings to overpay is a winner – it’s a bit like saving, tax-free, at the mortgage rate.
“Yet ensure you’re comparing to the HIGHEST savings rates you can get. If your savings pay a paltry 1%, as too many do, unless they’re locked away in a fix, it’s easy to ditch and switch. You can earn over 5% in both top easy access and fixed savings right now, so unless you’re locked in, that’s what you should be comparing with.”
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He added: “If it does add up… TWO KEY CHECKS before you do it. It’s not solely about the financial mathematics… Are there overpayment penalties?
“Many lenders let you annually overpay 10% of your mortgage balance penalty-free. Above that there are often penalties, which wipe out any gain, so do check.
“Always keep a cash emergency fund. The fact you’ve overpaid your mortgage doesn’t automatically mean if circumstances change and you suddenly can’t repay, the lender will say ‘oh, no probs’ – you’d still be in arrears. So my rule of thumb is always have money to cover 3 to 6 months’ bills accessible in savings, and only overpay with any money above that (unless it’s a specific offset mortgage).”
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