Knocking your mortgage payments into the best shape

When money is particularly tight, you’ll want to investigate all the possible ways of reducing your outgoings, and one of the biggest of those is likely to be your mortgage repayments.

No doubt, you’ll already have done your homework and found the best mortgage deal to suit your needs, but there may be other ways of helping to reduce the amount you’re paying the mortgage lender each month.

Which?, the consumer body and champion that looks at all types of goods and services, regularly reviews the position with mortgage lenders and the products they provide, as well as researching what can be done to minimise the impact to those signing up to those mortgages.

Take, for example, the overpayment option – where borrowers with any spare cash put it towards their payments with a view to paying the mortgage off earlier than would otherwise have been the case. This also potentially saves a lot of money further down the road as you don’t spend so much furnishing the interest payments for so long.

Where you might fit into the statistics

According to the latest Which? research, which asked a pool of 1,617 members of the public, more than a third of those with a mortgage said that they have overpaid on their loan over the past year. 

Which?’s research looks at how much you can save as you pay more than the standard amount expected each month. As they point out, the money saved on the overall interest can be invested elsewhere, accruing interest for yourself.

This breaks down further with around 25% of those polled confirming that they regularly overpay their mortgage each month, while a further 10% said that they had made a one-off payment to contribute towards the goal of reducing the accrued interest.

The value of regular overpayments

The amount that you overpay each month need not necessarily be a large amount, but the results can be extraordinary with thousands of pounds being saved.

With mortgage rates being the highest they have been for at least a decade, the repayment on any loan can seem quite daunting. So any way of reducing that financial burden has got to be beneficial, if you can afford to do so. 

Which? analysed the potential savings (based on a £200,000 mortgage on a 25-year term set at an interest rate of 6.36%).

Of course, the figures will differ according to the type of mortgage product, the length of the mortgage term, but the results indicate significant savings can be made, nevertheless.

Here is the findings from Which?’s analysis:

Monthly overpayment

Total paid back in mortgage term

Total amount saved over mortgage term

Time taken off mortgage term

£0

£392,101

£0

None

£5

£397,744

£2,147

3 months

£25

£389,652

£10,239

1 year, 1 month

£50

£380,520

£19,371

2 years, 1 month

£100

£364,885

£35,006

3 years, 9 months

£250

£331,667

£68,224

7 years, 6 months

Source: Which?

Lump sums as an option

Correspondingly, for those who can’t afford to make regular overpayments, as with the 10% of the polled audience, you might be thinking of paying the occasional or one-off lump sum.

Using the same starting point of a 25-year mortgage term on a loan of £200,000 with an interest rate of 6.36%, Which? made the following findings:

Lump sum overpayment

Total amount saved over mortgage term

Time taken off mortgage term

£2,500

£9,390

8 months

£5,000

£18,250

1 year, 5 months

£10,000

£34,540

2 years, 9 months

Source: Which?

Next steps

You should talk to your lender about the possibilities of either overpaying or paying a lump sum into the loan. They will be able to confirm the capability (or if there are certain penalties that might be applied, too).

You might also like to do some of your own analysis to calculate how your monthly repayments and mortgage term might be beneficially impacted by opting for this course of action.

Whether you can afford a large amount or a little, and whether on a regular or occasional basis, it’s certainly worth investigating further for the possible attraction of reducing your outgoings over time!