UK mortgage holders are spending thousands of pounds unnecessarily on their mortgage through one small oversight. Homeowners could cash in on significant savings and cut down their mortgage term, simply by making small but regular overpayments to their provider.
The amount you can save by overpaying varies by demographic and the type of mortgage you are on. New research by comparethemarket.comanalyses the savings available:
|Average mortgage debt||£130,720|
|Mortgage term||20 years|
|Overpayments per month||£100|
|Interest rate||2.49% (fixed)||4.89% (SVR)|
|Savings in interest||£5,895||£13,506|
|Reduced mortgage term||3 years, 2 months||3 years, 4 months|
The research finds that UK homeowners on a fixed rate repayment mortgage could save £5,895 and reduce their term by three years and 2 months by overpaying an extra £100 a month. For First Time Buyers on a fixed rate, the potential savings are even greater; through regular overpayments of £100 every month, this demographic could reduce their mortgage term by 2 years and 7 months and save £6,129 in interest.
Those on a standard variable rate mortgage (SVR) will see higher savings by overpaying on their mortgage because they are likely to be on a more expensive interest rate. These households can save over £13,000 on interest and knock 3 years and 4 months off their mortgage term by through regular overpayments.
Higher interest rates mean that mortgage holders on SVRs are likely to be paying over the odds. This group could instead switch to a fixed rate and use the extra cash from being on a cheaper product to make regular overpayments.
Mortgage holders who do overpay are willing to give up day-to-day luxuries in order to afford the extra cost.
A fifth (19%) said they had not taken a holiday abroad, over one in ten (12%) delayed buying a new car and over a fifth (21%) put off buying luxury items such as expensive clothes or gadgets like an iPad. These financial sacrifices however seem a small loss, as the majority (56%) of those who have overpaid admit contributing slightly more towards their mortgage makes them feel more financially secure in the long run.
However, the majority of mortgage holders (56%) still hesitate to put aside additional money towards their debt every year. For many, this is a question of cost as over half (55%) say that they cannot afford to make the extra payments and a third (33%) say that they have too many other outgoings, such as credit card debt and utility bills. While early repayment fees are standard across the mortgage industry, 54% of respondents agree that these charges discourage them from making overpayments.
Mark Gordon, director of mortgages, at comparethemarket.com, said:
“Even though committing more of your paycheque towards your mortgage can seem financially daunting, even modest but regular overpayments can save you thousands in the long run. Households on standard variable rates are likely to be paying higher interest rates and have more expensive monthly mortgage commitments. If you are on an SVR, instead of overpaying on your mortgage it may be wise to switch to a fixed rate product which is always cheaper. You can then use that extra money to make overpayments and reduce your term even further to avoid paying unnecessary sums in interest.”