SAVVY homeowners could save themselves thousands of pounds and pay off their mortgages years earlier by using lockdown savings to pay down their debt.
Many people have managed to save money during the pandemic due to the closure of pubs and restaurants, working from home and the lack of holidays abroad.
The latest research by YouGov showed that a third of Brits have stashed away more cash than usual during lockdowns, amounting to an average of around £4,500 each, or around £375 per month.
However, while some people have bolstered their savings account during the pandemic, others have lost thousands.
Of those people that said they have lost money during the pandemic, the median amount was around £3,000 – or £250 a month.
If you were one of the lucky Brits to save money during the pandemic, pumping some of that extra cash into paying off your mortgage could be a smart use of your savings.
It could be possible to pay off your borrowing earlier and allow you to save on future interest payments, saving you both time and money.
When you get a mortgage, you agree to a minimum amount to pay back to your lender each month.
Overpaying just means paying more than that, either regularly every month or as a lump sum.
How do you find the best mortgage deals?
WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You'll also have to decide if you want a fixed-deal where the interest you're charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statement.
If you overpaid by just £50 a month, you could save £5,233 in interest and pay off your mortgage two years and three months early, according to lender Habito.
This is based on a 25-year mortgage term, of £150,000, with a current interest rate of 2.5%.
Paying an extra £100 per month could help you pay your mortgage off four years and three months earlier, saving you around £9,291.
A recurring overpayment of £150 a month would net you £13,026 in saved interest, and you would also be mortgage free five years and 10 months earlier.
If you overpaid by £200 a month, it would help you pay off your mortgage seven years and three months early – and save you £16,009.
One-off overpayments are less lucrative but could still make a difference.
An overpayment of £150 on just one occasion would save you an additional £130 in interest but wouldn’t shorten the mortgage repayment time.
To reduce the length of your mortgage by one month, you need to make a one-off payment of £500 or more, which would save you £431 in interest.
Rosie Fish, mortgage expert at Habito, said: "If you can afford to overpay your mortgage, you should as it can help you get mortgage-free faster and saves the interest you would have paid on having the debt for longer."
But it’s important to do your research to make sure overpaying your mortgage is the right decision for you.
There are several points to consider before you start increasing your mortgage payments.
What to watch out for
One reason it might not make sense to overpay is if you have other more expensive debts that should be cleared first – such as an overdraft.
You should also remember to tell your lender that the reason you’re overpaying is to reduce your mortgage term.
Otherwise, your bank might keep your term the same and use your one-off lump sum overpayment to reduce your monthly payments.
You also need to watch out for early repayment charges (ERCs), which is a penalty fee charged if you go over the maximum repayment amount.
Most lenders will let you overpay a maximum of 10% of your remaining mortgage balance each year.
Check the small print of your mortgage agreement to see what overpayment flexibility your deal gives you.
If you overpay more than allowed, you’ll be hit with penalty fees typically between 1%-5% of the outstanding mortgage.
For example, a 3% fee on a £150,000 mortgage would force you to fork out £4,500 so it’s best to stick with in the terms of your agreement.
Want to be mortgage free in the next 10 years? We've rounded up the top tips to help you pay it off fast.
This thrifty couple managed to pay off their mortgage 28 years early.
And if you're trying to get on the property ladder, we've got a guide to finding the best mortgage for you.
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