UK households have been urged to consider “overpaying” on their mortgage or risk an eye-watering £14,000 bill in interest. Mortgage holders have been told to consider overpayments – or risk losing cash to rising interest rates from lenders as the Cost of Living crisis continues.
Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, explained: “Consider a £200,000 mortgage with a 25-year term at an interest rate of three percent. Without overpayment, you would pay approximately £84,000 in interest over the term of the mortgage.
“With an overpayment of £100 each month, you could save around £14,000 in interest and shorten the mortgage term by roughly four years.” Mr Mugleston added: “One of the key benefits of overpaying your mortgage is the reduction in interest payments over the lifetime of the loan.
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“Since mortgage interest is calculated on the outstanding balance, reducing this balance early can lead to significant savings. By overpaying, you can also shorten the term of your mortgage, potentially paying it off years earlier than planned which not only saves on interest but also provides financial freedom sooner.”
He said: “This can be particularly beneficial if you plan to remortgage or sell your property, as you’ll have a larger share of the property’s value at your disposal.” He continued: “It’s essential to check your mortgage agreement to understand any penalties you might incur.”
Mr Mugleston also explained: “Consider maintaining an emergency fund so you have sufficient savings available for unforeseen expenses and think about the opportunity of overpaying your mortgage against other investments.” Mr Mugleston said: “Some people prefer setting up a standing order for regular overpayments, while others opt to use bonuses or windfalls for lump sums.
“This really all depends on your financial situation and it’s crucial to ensure you are spending within your means.”
