Santander has shared how homeowners could save nearly £13,000 in interest and knock two years off their mortgage term. Santander says homeowners could save nearly £13,000 in interest and reduce their mortgage term by two years by redirecting their Dry January savings into mortgage payments.
Graham Sellar, Head of Intermediary Channel – Mortgages, at Santander, said: “Whatever the reason for doing Dry January, there’s an indisputable benefit to your bank account. It’s tempting to spend that extra cash, but for those able to put even a small proportion of it aside, starting a habit of overpaying on your mortgage could reap huge benefits in the long run.”
According to statistics from ONS, the average pint of lager costing £4.81. Redirecting the monthly cost of 12 pints (£57) towards a £200,000 mortgage over 25 years at 4.5 per cent interest would result in being mortgage-free two years and one month earlier than planned.
BREAD MORE Blue Badge holders face £1,000 fine under plan to ‘tackle’ trend
Cutting back 30 pints monthly could save £28,373 in interest and reduce their mortgage term by four years and eight months. Cutting back just four pints monthly would save £4,647 and reduce the mortgage term by nine months.
Those reducing their intake by 20 pints per month could save £20,432 and cut their mortgage term by three years and four months. Jonathan Bone, Head of Mortgages at online broker Better.co.uk , said: “An overpayment refers to making extra payments towards your mortgage, either regularly or as a one-time contribution. A simple way to do this is by increasing your monthly payment by however much you like. If you have extra money at the end of the month, you may be able to make overpayments, resulting in long-term savings.”
He added: “You are often given two options with overpayments: you can either use the overpayment to reduce your monthly payment or shorten your mortgage term. Reducing your payment will mean the overall length of your mortgage remains the same, but your obligated payment reduces. Alternatively, overpayments that reduce the term will retain the same monthly payment but reduce the mortgage term. Both options will save you money in the long run, but reducing the term will do so more effectively. The downside is that your monthly commitment hasn’t reduced.
“It’s worth noting that different lenders have varying thresholds for when they allow you to choose to reduce the term or the payment. Always speak with your lender to confirm what your overpayment will do.” He added: “Making overpayments, within your means, can make your mortgage a lot cheaper. That said, this is nuanced and varies depending on many factors.
“The more expensive your mortgage is overall, the more you’ll be likely to save by making overpayments. However, this doesn’t mean that those with smaller mortgages should rule out making them. For example, someone with a £250,000 mortgage and a 25-year term paying a 5% interest rate could save nearly £15,000 in interest by overpaying just £100 extra per month. Those savings are still impactful, no matter the size of your mortgage.”