How many years does an extra mortgage payment take off your loan?

With mortgage terms ranging from 25 to 40 years, financing your property purchase through a bank, building society or other lender can best be described as a long term commitment! While most of us never complete the full term, choosing to move on and up the property ladder, research has shown that people are moving house less frequently than ever. While Brits used to move an average of four times after their first purchase, they are now only moving twice.

Staying put for longer puts the grim reality of mortgages into perspective, with most people shocked by how much they really pay off their properties due to crippling interest rates. Paying more than your monthly repayment however could provide the answer…

Is paying more off your mortgage worth it?

Overpaying on your mortgage can be a smart financial move with some serious long term benefits. By paying more than the required monthly amount, you reduce the outstanding loan balance faster, which decreases the total interest you’ll pay over the life of your mortgage.

Overpaying can also help you build equity in your home more quickly, giving you greater financial flexibility in the future. Using any spare funds to make an extra mortgage payment can be advantageous for all types of buyers, including those who want to remortgage to a better deal, move home or release equity later in life. A lower outstanding balance ultimately strengthens your position making homeownership an even more satisfying experience.

How much could I really save?

Even the smallest overpayments made regularly can shave years off your term and lead to significant savings. This is especially true during the early years of a mortgage, when interest makes up a larger portion of your repayments.

Let’s give you an example – Say you have an outstanding balance of £200,000 on your mortgage and a 25-year term with an interest rate of 2.5%. Paying just £100 more per month could save you a whopping £9,948 in interest and shave your mortgage term down by 3 years and 4 months. Increase this to £200 extra per month, and you’ll save £17,358 and take 5 years and 11 months off your mortgage term.

Are there any restrictions when overpaying?

Before making overpayments, it’s important to check with your lender about any overpayment limits or penalties that could be applicable. Most lenders allow you to pay up to a certain percentage – usually around 10% per year – without incurring charges.

Set the money aside or overpay?

Extra mortgage repayments aren’t for everyone, which makes assessing your circumstances first vital. Some people find better results saving any money they would have used to overpay. 

Thankfully, we’re here to help you determine the right next step. Deciding to save money or use it to overpay on your mortgage is a decision that should be based on your personal circumstances. Our team can help you weigh up the pros and cons of all the options available to you.

Please contact our team for further advice about your mortgage.