How to save THOUSANDS in interest by overpaying your mortgage using lockdown savings
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 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.
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.
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