Single mother Isla Conley is on track to reduce her mortgage term by 17 years and save tens of thousands of pounds in interest in an attempt to become debt-free as soon as possible.
When Isla, 42, bought her home in West Yorkshire in 2016, she took out a 35-year mortgage of £163,000 but has since reduced her balance to £117,750.
Isla, who has two children aged 14 and 11, said she often overpays by several hundred pounds every month alongside her normal monthly repayments and is now on track to cut the term to 18 years.
She started off small, paying an extra £30 a month, but she now puts any disposable income she has left before payday towards her mortgage.
She also makes weekly overpayments of between £10 and £100 using cashback and referral rewards earned through mortgage app Sprive. Since January this year, she has earned £1,180 in mortgage overpayments through the cashback feature alone.
Based on her current rate of overpaying, Sprive estimates she will save around £61,000 in mortgage interest and clear her loan almost 17 years earlier than expected.
“I started off just overpaying £30 a month, but once I saw how much of a difference even small amounts could make, I became much more focused on it,” Isla, a teacher, said.
“Now I use the app almost every day and put cashback from things I would be buying anyway straight towards the mortgage. I’ll also make extra payments at the end of the month if I have any money left over.
“I’ve been amazed by the progress I’ve made in such a short space of time – becoming mortgage-free is actually a goal for me now.”
Even relatively small payments can dramatically reduce the overall cost of a mortgage, particularly as borrowers increasingly take out larger loans over longer terms to bring down monthly repayments.
This comes as interest rates have made mortgages less affordable.
Some lenders have also increased the amount people can borrow relative to their income to help them get on the housing ladder.
NatWest has recently increased the maximum amount some higher-earning borrowers can borrow to 6.5 times their income, for example, allowing them to borrow up to £975,000.
Larger income multiples can help buyers afford more expensive homes, but they can also leave households paying off their mortgages later in life and significantly increase the interest they pay.
The average first-time buyer is now 32, while one in nine is aged 45 or over and almost one in three has a mortgage lasting 35 years or more, according to figures from Sprive.
That means many borrowers could still be making mortgage payments into their 60s, while some will be paying into their 70s.
Overpaying can help reduce both the mortgage term and the amount of interest ultimately paid.
Most lenders will allow you to overpay up to 10 per cent of your total mortgage per month or across the whole year without penalty, although some will let you pay more than this. Check with your lender before you start overpaying.
Sprive calculated the impact of overpaying on a £234,234 mortgage at an interest rate of 5 per cent. On a 25-year term, the standard monthly repayment would be £1,369, with the borrower repaying £410,793 in total.
Paying an extra £100 a month would increase repayments to £1,469, but could clear the mortgage three years and one month earlier and save £25,141 in interest.
The potential savings are even greater on a longer mortgage term. On a 30-year mortgage for the same amount, the standard monthly payment would be £1,257, with total repayments of £452,671.
Overpaying by £100 a month could clear the loan four years and six months early and save £38,272 in interest, while an extra £250 a month could cut the term by nine years and save £74,709.
Louis Mason, director at Oportfolio Mortgages, said: “Overpaying is great if you find yourself in a position to do it, but the sweet spot isn’t necessarily making huge lump-sum payments – for many people, a smaller regular overpayment that they can comfortably maintain is more realistic.
“If your salary increases, for example, putting part of that increase towards the mortgage means you can considerably speed up repayment without feeling like your monthly budget has gone backwards.”
Should you always overpay your mortgage?
While overpaying your mortgage could save you a lot of money long term, experts warn that overpayments should not automatically take priority over every other use of spare cash.
Mason said: “The biggest mistake is using any spare bit of money you have on the mortgage. Having £20,000 less mortgage debt isn’t much comfort if the boiler breaks and you’ve emptied your savings account.”
Michelle Lawson, director at Lawson Financial, said borrowers should also compare their mortgage rate with the return they could earn by keeping their money in savings, and remember that overpaying their mortgage ties the money up in property.
“Always compare your mortgage rate with the return available on your savings, including tax-efficient options such as ISAs to avoid being disadvantaged,” she said.
“Remember that once money is paid into your mortgage, it may not be easily accessible again unless your mortgage offers this flexibility or via a further advance or remortgage.”
For people who want to keep access to their savings, Lawson said an offset mortgage could provide an alternative by reducing the balance on which mortgage interest is charged without permanently giving up access to the cash.
An offset mortgage links your savings to your mortgage, so you pay interest only on the difference while keeping the savings accessible.
Another approach is deliberately taking a longer mortgage term to keep the required monthly payment lower, while voluntarily overpaying as though the mortgage were on a shorter term, giving borrowers more flexibility based on their finances month to month.
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