In general, Martin Lewis recommends overpaying your mortgage if your rate is higher than you can earn in savings – you can use online calculators to check if you’d be better off
A fan of Martin Lewis has explained how they’ve saved £35,000 in interest on their mortgage – and will clear their debt altogether ten years early.
MoneySavingExpert.com reader Paul explained how he always makes overpayments, so he can pay his mortgage off quicker. He said: “We moved jobs seven years ago, and had to buy a small property to use for work purposes. We managed to get a 100% mortgage, although it was expensive.
“We’ve always listened to you and I set up a small regular overpayment, throw all my overtime money at it, and every day check my bank balance. If there is an odd amount, say I have £1,525.36, that’s either £5.36 or £25.36 put towards the mortgage, budget depending. We’ve saved £35,000 in interest & knocked 10 years off our mortgage (originally 27 years). We’re continuing to plan to get rid of the mortgage altogether ASAP!”
However, overpaying your mortgage may not be the right move for everyone. In general, Martin Lewis recommends overpaying your mortgage if your rate is higher than you can earn in savings. He used the example of someone who has £10,000 spare.
If they put this in a savings account that pays 4% interest, they would make £400, or £320 if you end up paying 20% tax on savings. But if the same person used that £10,000 to overpay a 6% mortgage, they would save £600 in interest. MSE has a Mortgage Overpay Calculator which could help you see which is the best option.
If you are considering overpaying your mortgage, check if you’ll be subject to overpayment penalties. MSE explains how many lenders let you overpay 10% of your mortgage each year before you incur a charge. You should also always keep an cash emergency fund in savings. If you do overpay, also check the money you’re using is going toward reducing the term – not just your monthly repayments.
