UK savings reached £200bn during lockdown and overpayments could reduce interest costs and clear your mortgage years earlier.
Reduced expenditure during lockdown has increased UK saving £200 billion which could be used by remortgage buyers to reduce your mortgage, says Halifax, saving on interest costs and clearing the loan early.
There are 10 million mortgages in the UK with borrowings of £1,500 billion and most lenders allow penalty free overpayments of 10% of the outstanding loan.
Potentially, homeowners could save £16,000 pounds of interest costs off a £200,000 mortgage and reduce the term by as much as three years by using savings made during lockdown.
For older homeowners using equity release, repaying the mortgage early at least in part is also possible and will increase the amount of equity available in the future for your family.
Savings by making overpayments
The Bank of England suggests savings by Britons during lockdown is £200bn with 45% of the population engaged in some employment and restricted spending making average savings of £450 per month.
The following tables from Halifax show the interest savings you can with a 25-year mortgage on a repayment basis based on an average 4% interest rate by making either a regular or single lump sum overpayment.
This shows the interest savings you can make with a £225 per month overpayment at the anniversary of month 1 or after 5 and 10 years from the start of the mortgage.
| Mortgage | Month 1 | Year 5 |
Year 10 |
|---|---|---|---|
| 100k | £26,059 | £26,059 | £9,209 |
| 200k | £33,791 | £21,071 | £11,449 |
| 300k | £37,535 | £23,162 | £12,460 |
| 400k | £39,754 | £24,374 | £13,036 |
| 500k | £41,217 | £25,167 | £13,417 |
This shows the interest savings you can make on a single £10,000 overpayment at the anniversary after 1, 5 and 10 years from the start of the mortgage.
| Mortgage | Year 1 | Year 5 |
Year 10 |
|---|---|---|---|
| 100k | £14,180 | £10,833 | £7,260 |
| 200k | £15,102 | £11,517 | £7,731 |
| 300k | £15,427 | £11,761 | £7,894 |
| 400k | £15,596 | £11,883 | £7,979 |
| 500k | £15,703 | £11,958 | £8,034 |
If you are a first time buyer or home mover buying a £200,000 property, by making an overpayment of £90 per month from the start you could save £16,847 in interest and take 37 months off the mortgage term.
Savings interest is very low offering a fixed rate of 1.55% and saving £90 per month earns £2,261 over 15 years compared to the interest cost saving with the same amount overpaying a mortgage of £4,813.
Alternatively, by making a single lump sum overpayment of £10,000 in year 5 you would reduce the interest you pay by £11,517 and reduce the mortgage term by 20 months.
Older homeowners can benefit
Homeowners accessing cash with equity release can benefit as the product features of lifetime mortgages allow you an overpayment of 10% on the original loan penalty free.
The cost of equity release has reduced significantly over the past five years with greater competition and lower interest rates following the pandemic and costs are from 2.7% per year.
Overpayments can be made from the start of the plan on a regular basis, such as repaying the provider fixed interest rates rather than allowing this to roll-up over time.
See what difference you can make by making overpayments and the extra equity you can leave to your beneficiaries at this link:
Equity release calculator with instant results and figures for your home.
Single lump sum payments can be made to reduce the original loan and this will increase any value if you intend to leave equity for beneficiaries.
What are your next steps?
Talk to our London City Mortgage advisers if you are releasing equity and making overpayments, we can recommend the product as well as managing and completing the lifetime mortgage.
Find out more about the best products and interest rates to consider if you are releasing equity from your property with this link:
Free equity release quote with interest rates to release cash from your home.
Our expert advisers can find the mortgage to meet your needs. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.
