Homeowners across the UK could be saving thousands, or even tens of thousands of pounds, by doing one straightforward thing, according to a mortgage broker. It’s a technique that virtually anyone with a mortgage can employ, yet many people are either unaware of it or fail to grasp the potential savings on offer.
“When we speak to people about the full impact of even small mortgage overpayments, they often look on in disbelief,” said Harry Goodliffe, director of Winchester-based HTG Mortgages.
He added: “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.”
Harry explained that most lenders permit those on popular fixed-rate mortgages to overpay by up to 10% of the outstanding balance annually, though in reality the overwhelming majority of borrowers overpay considerably less than this.
He continued: “Even if you’re overpaying by just £50 or £100 a month, that can translate into serious savings over the term of the mortgage.”
Harry further noted that when borrowers make overpayments, most lenders offer them the choice of either reducing their monthly repayments going forward or cutting short the mortgage term.
He said: “One tip if you’re keen to reduce your mortgage term is to 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.”
However, Harry cautioned that those considering overpayments should always verify the maximum amount they are permitted to overpay annually with their lender.
He added: “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.”
Harry further advised that prior to making overpayments, individuals should typically ensure they have a financial safety net in place to cover unforeseen expenditure or loss of income.
He added: “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.”
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