Money guru Martin Lewis has dished out important advice on whether you should overpay your mortgage. It comes amid concerns that the Bank of England will raise interest rates to as high as six percent.
The change would increase mortgage repayments by hundreds for many homeowners, including one first-time buyer who said her interest offer had risen from 4.5% to 10.4%. For some, it means making mortgage overpayments can be the answer as it means you will pay off your mortgage quicker and save money on the total amount of interest you pay over the life of the mortgage.
However, that doesn't mean mortgage overpayments are for everyone. In the most recent Money Saving Expert newsletter on Wednesday, Martin told readers which option would suit them best.
He said there is one simple rule that people should follow to determine whether they should overpay or not. He said: "Only overpay if your mortgage rate is higher than the rate you'd earn saving.
He said: "After all, as a simple example, £10,000 in savings at 2% earns £200 for the year, yet use it to overpay a 3% mortgage and it reduces costs by £300 for the year. Effectively overpaying is tax-free 'saving' at the mortgage rate, so if the rate's higher than savings after tax it wins."
He explained that with recent mortgages, rates are high and therefore the benefit of overpaying is most likely. With older fixes, he said your rate is more likely to be cheap and possibly below 2% compared to top savings rates of 2.5% easy access or 4.2% for a year's fix.
"So, saving is likely to win," he wrote. "If so, put the money away until your mortgage fix ends (timing fixed savings to end then too is useful) and at that point, consider using it towards reducing your new likely-much-higher-rate mortgage."
The financial expert also set out a number of other factors to consider, including any expensive debts you might owe, such as credit cards, whether there are any fees to overpaying your mortgage, and to make sure you've got a back up fund in case of emergencies.
Home-owners can also consider reducing their mortgage size to get a better deal. And most importantly, to benefit from overpaying you must ask your mortgage provider to make sure each overpayment reduces your mortgage term, instead of lowering future repayments. You can get the full details here.
You can sign up to the WalesOnline money-saving newsletter here.
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