Should you start overpaying your mortgage?
Reports state that roughly 19% of mortgage holders are overpaying every month, according to Santander Mortgages. 6% overpay once a year, while another 9% pay more than they need to on an ad hoc basis.
It seems people are taking advantage of low interest rates as this is a rather recent trend among homeowners.
CML chief economist Bob Pannell said: "Housing activity is set to strengthen further in the short-term, and to contribute materially to overall economic growth. Combined with the Bank of England’s recent optimism about the economy, this has led some commentators to speculate that an early rate rise may be on the cards. We do not currently share this view."
Why overpay on your mortgage?
If you overpay on your mortgage, you'll end up paying less interest overall. It seems that, if you have some cash to spare, it is better to pay more toward your mortgage rather than paying into savings, seeing as the rates on the latter aren't great at the moment.
Mortgage rates have been steadily falling throughout 2013 which has allowed people to get cheaper mortgage deals, be it for a new buy or a remortgage. They can opt to use some of the savings they would have made to overpay on their usual monthly payments, thereby reducing the loan. You could reduce your mortgage term and save thousands.
According to one repayment calculator, if you overpay £181 per month on a £200,000 mortgage at 3.5%, you'd end up saving £24,118 over the mortgage lifetime, reducing the mortgage term by over five years. So if you have any spare cash, this is certainly worth thinking about.