UK homeowners have overpaid £7bn on their mortgages in the past six months, with borrowers aged 25-39 most likely to make extra payments.
Overpaying can cut the term of your mortgage and how much interest you'll pay in the long run, but very few homeowners currently make additional payments.
Here, we explain how to overpay your mortgage, and offer advice on the key things you should consider first.
Those who overpaid made extra payments averaging £319 a month, totaling £7bn over the six-month period.
Borrowers aged 25-39 were most likely to have overpaid, while those aged 55 or above were least likely to have done so.
|Age of homeowner||Percentage who overpaid||Average monthly overpayment|
The table below shows how much you could theoretically save if you overpaid a set amount each month. We've calculated the figures based on a £200,000 mortgage with a 25-year term and interest rate of 2.5%.
|Monthly overpayment||Total amount saved over mortgage term||Time taken off mortgage term|
|£50||£5,368||1 year, 10 months|
|£100||£9,948||3 years, 4 months|
|£150||£13,905||4 years, 8 months|
|£200||£17,358||5 years, 11 months|
If you're thinking of making an additional payment, you can get a broad idea of the effect if might have by using our mortgage overpayment calculator.
To get started, enter your balance, term, interest rate and proposed overpayment below.
The figures above might sound big, but they're examples based on making set overpayments every month for the lifetime of your mortgage.
In reality, you might find that it's not possible to consistently commit to the extra payment each month, and that's fine.
The vast majority of mortgages allow you to make ad-hoc overpayments on a monthly basis or as a lump sum - so if you want to put in an extra £100 one month, nothing the next, and £50 the month after, you can do so. Most major lenders allow you to make overpayments by logging in to your online account, but some may require you to call.
Most mortgages will allow you to overpay up to 10% of the balance of the mortgage fee-free per year, but you should check your bank's policy before making additional payments. A 10% limit means that on a £200,000 mortgage, you'll be able to overpay by £20,000 each year.
If you want to pay a bigger sum, consider staggering your payments or speak to your lender about your options at the end of your fixed term.
Poor returns on savings are one of the main reasons homeowners consider overpaying their mortgages.
Right now, the best rate you can get on an instant-access savings account is just 0.6%, meaning only slim margins are on offer even for those saving significant sums. To get a rate of more than 1%, you'll need to lock up your savings for a year.
These small gains mean that you could be better off in the long run by putting extra money towards your mortgage.
Making overpayments on your mortgage may be tempting, but it's not always the best course of action. Consider the following before making an overpayment.
With this in mind, ensure you've got a substantial enough nest egg of savings you can use as an emergency fund before even considering making overpayments.