Paying £25 extra a month will get you mortgage free a year earlier
Borrowers with a £143,000 mortgage can cut one year and three months off their mortgage, as well as saving a nifty £2,749 over the term
HOMEOWNERS could shave years off their mortgage - and save thousands of pounds - simply by paying an extra £25 a month on their home loans.
New research has found that customers can save up to £2,749 on their mortgage and pay it off quicker if they over pay on their monthly bills.
First-time buyers who have to borrow the average £143,000 needed to get on the property ladder, according to UK Finance, can shave one year and three months off their mortgage, as well as saving a nifty £2,749 over the term - all for the price of a takeaway.
Even adding an extra tenner a month can make a difference, albeit smaller, saving you £1,138 a month and leaving you mortgage free six months sooner.
This is because it shortens the term of the loan and therefore the less interest there is for you to pay.
The figures from Santander are based on mortgages taken out over a 25 year period on a 2.5 per cent interest rate.
Save on your mortgage by cutting the length of your loan
YOU can save by slashing the length of your mortgage - even by just five years.
David Hollingworth, an expert at mortgage broker London & Country said: "If you can keep the term as short as possible you'll not only pay off the mortgage more quickly but you'll pay less interest over the life of the mortgage.
"So if you went from a 40 or 35 year mortgage to a more traditional 25 year mortgage, you could be talking about saving tens of thousands in additional interest over the life of the loan.
"Of course, you've got to balance this with the fact that your monthly repayments will rise."
For example, taking a 150,000 mortgage with a 2.5 per cent interest rate, you'd pay:
- 40 year mortgage: £87,442 in interest or £494.67 a month
- 35 year mortgage: £75,221 in interest or £536.24 a month
- 30 year mortgage: £63,365 in interest or £592.68 a month
- 25 year mortgage: £51,879 in interest or £672.93 a month
- 20 year mortgage: £40,764 in interest or £794.85 a month
Also be aware that if you're midway through your current mortgage deal your provider may have to re-do affordability checks and may charge a fee to shorten your deal, so you could be better off doing this when your current deal ends.
Of course, the more you can pay now the better the benefits in the long haul.
Homeowners who can spare an extra £50 a month could actually shorten their term by two years and five months, as well as saving £5,203 overall.
Customers who are looking to remortgage will need to borrow £183,000 on average (UK Finance) but could shorten their payment period by a year if they forked out an extra £25 a month.
It would also save them another £2,784 in the interest payments over the years in total.
You can save cash and time even if you've taken out a bigger mortgage too.
How to find the best mortgage
FINDING the right mortgage is all about your individual circumstances. Here's some advice on what you should keep in mind:
- Decide what kind of mortgage you want: a fixed deal means you'll know exactly what your mortgage will cost, but if interest rates fall, you won’t see your payments drop. A variable deal means your costs will fluctuate, but only because of economic changes, rather than decisions by the lender.
- Shop around: there are big differences between mortgage deals, so make sure you compare costs. Also check whether there are any cashbacks or other offers. Here websites such as Moneysupermarket and Moneyfacts may come in handy.
- Calculate your total costs: look beyond the headline interest rate and take into account all the fees you have to pay, such as arrangement fees, mortgage valuation fees and insurance fees.
- Consult a mortgage broker: if the flurry of options are confusing, a mortgage broker can help you find a deal that best suits your personal circumstances. Just make sure that you use an independent company or adviser.
An extra £25 a month could save mortgage-payers who owe their lender £200,00 up to £2,795 and cut the payment time down by 11 months, while another £50 will save them £5,368 and one year and nine months.
Miguel Sard, head of mortgages at Santander, commented: "Many customers don’t realise that they’re able to make such small over payments on their mortgage – or the huge savings that those over payments could bring with interest rates as they currently are.
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"While it's important that customers remember to keep cash savings aside for a rainy day, our data shows that even an extra £10 a month makes a difference over the life of a customer's mortgage.
"This is great news and shows the value of mortgage over payments doesn’t need to be reserved for people who receive large bonuses or have hundreds each month to spare."
A new mortgage platform launched in October and it could help you cut your mortgage bills by thousands of pounds per year.
If you don't want to give your bank statements to your lender when you apply for a mortgage, here are the handful of banks that don't require them.
Some of you may be worried that your application won't even get accepted, but there are certain steps you can take to make sure it does.
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