Low interest rates over the last two years have allowed thousands of borrowers to save money by overpaying on their mortgage and reducing their debt.
Latest figures from the Bank of England show that in the three months to September last year, UK homeowners reduced their mortgage debt by £6.1billion. Since the middle of 2008, homeowners have collectively paid off almost £50billion in debt secured on their homes (before then we were taking billions of equity out of our homes each month).
If you’ve been overpaying your mortgage then you probably know that it makes great financial sense.
By overpaying and reducing the amount you owe, you can pay less interest and pay your mortgage off quicker. Someone overpaying by £200 per month on a £150,000 interest only mortgage at a rate of 4% would save £28,562 in interest and pay off their loan 7 years and 5 months early.
Furthermore, with interest rates so low, the equivalent return your money would earn if you put it in a savings account is negligible.
If you’re not overpaying now, but want to start doing so, make sure your current mortgage deal allows overpayments to be made without incurring Early Repayment Charges (ERCs). Most deals will allow some form of penalty-free overpayment – often limited to 10% of your mortgage balance per year, but some are more accommodating.
Flexible mortgages will usually allow you to make unlimited overpayments and often allow you to borrow those overpayments back in the future so you still retain access to your cash.
See how much money you could save with our mortgage overpayment calculator.