Martin Lewis has urged mortgage holders to take action to find out if they can save thousands of pounds by overpaying on their repayments.
The founder of Money Saving Expert wrote in the latest edition of the group’s Money Tips newsletter to urge people to check if they can benefit from overpaying.
He said: “The simple rule: if your mortgage rate is higher than you can earn in savings, overpaying adds up. After all, £10,000 saved at three percent earns £300 for the year, yet use it to overpay a five percent mortgage and it reduces costs by £500 over the same period. “Overpaying is effectively tax-free ‘saving’ at the mortgage rate. Yet remember, millions of savers are being ripped off earning diddly-squat.”
He pointed people to Money Saving Expert’s Mortgage Overpayment Calculator tool, saying overpaying may add up even if a person’s savings pay slightly more than their mortgage costs.
Mr Lewis shared a tweet from Twitter user @rainbowchaser79 who saved “tens of thousands of pounds in interest” and was able to get mortgage free 17 years earlier than expected, after using his overpayment calculator.
He gave some tips to help people plan ahead for making mortgage overpayments while not impacting their wide finances.
He said people should ensure they have an emergency cash fund in their savings with enough money to cover three to six months of bills.
Only after a person has this in place should they look at spending money on mortgage overpayments.
People should also check there are no overpayment penalties for their mortgage as many lenders allow a borrower to overpay 10 percent of their balance, with penalties for any further overpayments.
Another tip from Mr Lewis is to make sure overpayments go towards reducing the term of the mortgage.
Some overpayments will just reduce a person’s future repayments and will mean a person still pays over the same term, so they don’t save in reduced interest.
People may also want to consider that a benefit of making overpayments and reducing one’s mortgage debt is they may be able to get a better deal as a result.
Mr Lewis said there are certain loan-to-value thresholds at which a person can get access to better deals, such as at 75 percent and 60 percent.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to https://www.moneysavingexpert.com/latesttip/.
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