Mortgage Holders Warned: Overpay or Face £14,000 Bill

As the cost of living crisis continues to affect UK households, mortgage holders are being warned to consider overpaying their mortgage or risk losing cash to rising interest rates from lenders.

The Cost of Not Overpaying

According to Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, not overpaying your mortgage can result in a staggering £14,000 bill. He explains, “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.”

Mortgage Calculator

The Benefits of Overpaying

However, 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 adds, “One of the key benefits of overpaying your mortgage is the reduction in interest payments over the lifetime of the loan. Since mortgage interest is calculated on the outstanding balance, reducing this balance early can lead to significant savings.”

Mortgage Interest

Financial Freedom Sooner

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. 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.

Financial Freedom

Considerations Before Overpaying

Before overpaying, it’s essential to check your mortgage agreement to understand any penalties you might incur. Mr. Mugleston also advises maintaining an emergency fund to ensure you have sufficient savings available for unforeseen expenses.

Emergency Fund

Overpayment Options

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.

Overpayment Options

By considering overpayment options and understanding the benefits of reducing your mortgage balance, you can take control of your finances and avoid the potential £14,000 bill.