Cutting your biggest household expense could save you £20,000! Take these 2 simple steps

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Financial advisor discusses how to better pay back your mortgage

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As millions look to cut their spending in the wake of the pandemic they must not overlook what for millions is the biggest monthly household expense of all – their mortgage. Overpaying by just £100 a month could save you thousands and there’s more you can do to cut the cost.

A homeowner with the average £140,000 mortgage could cut the total cost by more than £20,000 over the full term and clear the debt off six years early by making small but regular overpayments of just £100 a month, new research shows.

Shopping around for a cheaper mortgage deal could also generate big savings.

The average mortgage debt is currently £140,000, spread over a 30-year term. If someone had a two-year fixed rate mortgage charging 1.52 percent, they could save £7,492 in interest by overpaying by an extra £100 a month.

This would also allow them to clear the debt much sooner, knocking six years and two months off their repayment term.

A homeowner who still has 25 years on their mortgage could save £5,274 in interest, while savings over a 20-year term could total £3,423.

Borrowers with more expensive mortgages can generate even bigger savings.

Right now, the average SVR charges 3.61 per cent, more than double today’s average two-year fixed rate. Some lenders charge four or five percent.

If somebody with a £140,000 mortgage on the average SVR overpaid by £100 a month, their savings over a 30-year term would total a massive £21,568.

For somebody with a 25-year mortgage term, the total saving would be £14,755, falling to £9,290 over a 20-year term.

Comparethemarket.com’s head of money James Padmore said committing more of your monthly pay towards your mortgage can seem daunting, but modest, regular overpayments can save you thousands in interest over the long run.

Padmore said always contact your lender first to check whether you will incur a penalty for overpaying.

“Most lenders allow borrowers to overpay by 10 per cent a year of the total outstanding amount, but it varies from lender to lender so check what yours offers.”

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Those who are still within the initial term of their fixed or discounted rate mortgage deal may be barred from making penalty-free overpayments.

Padmore said think twice before using all your spare cash to shrink your mortgage, and keep some money in reserve for a rainy day.

Karen Noye, mortgage expert at Quilter, warned against borrowing too much to get on the property ladder as today’s low interest rates may not last forever. “With inflation potentially set to soar any increase in interest rates will impact people’s ability to afford mortgage payments.”

In that scenario, overpaying your mortgage makes even more sense.

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