You Are Here: LearnMoney.co.uk > Articles Home Page > Mortgage Articles > Mortgage Article
...Home Page...|...Financial Yellow Pages...|...About LearnMoney.co.uk...|...Contact Us...|
Navigation
Articles Section
Mortgage Articles
Mortgage Article
Mortgage Section

Mortgage Article

Overpaying a Mortgage Pays Massive Dividends

The mortgage broker John Charcol has published some interesting statistics on the significance of overpaying on a mortgage. Overpaying is where you pay more than your expected monthly payment.

Basically by overpaying you can become debt-free far sooner than expected AND therefore pay less interest. See the diagram below for a visual description of this.

Based on a £100k loan at 5% over 25 years on a repayment basis

  • As we can see from the diagram above just paying an extra £50 a month on your mortgage account translates into a reduction of interest of £12,253, but perhaps more significantly the total loan is paid off over 3 years earlier
  • Increase the monthly overpayment to £150 and the interest bill goes down by around £27,500 and the total debt is cleared a full 8 years earlier

How To Overpay

Most mortgages these days are totally flexible so it's just a matter of paying more money into your account. But if you can afford to overpay all the time then it's better to alter your direct debit or perhaps set a new one up.

Lump sum payments into your mortgage account will also help tremendously in reducing the interest paid as well as the length of the debt. If you therefore come into any extra money (perhaps left a legacy from a deceased relative) you should seriously consider making a long term financial decision and reducing your mortgage debt.
© 2008 LearnMoney.co.uk Ltd. All rights reserved

The information on the LearnMoney.co.uk website has been compiled from sources believed to be reliable, but is not warranted to be accurate or complete.
All recommendations and comments are provided for general interest only and should not be construed as personal investment advice.
Professional advice should always be sought.
The price of securities and any income from them can go down as well as up.
Past performance of a security or market is not necessarily indicative of future trends.
Any opinions and recommendations on LearnMoney.co.uk are given in good faith, but without legal responsibility and are subject to change without notice.