I’m on track to pay off my mortgage eight years early with easy trick – it’ll save me £20,000

PENSIONS officer Linda Slavich is set to save £20,000 in total interest simply by overpaying her mortgage each month.

The mum-of-two, 51, is also on track to become mortgage-free seven years and eight months faster, thanks to the extra payments.

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Warwick-based Linda and her husband Steve, 51, who works in fire management, usually pay an extra £250 a month bringing their overall mortgage bill up to £1,287.

The couple uses the free app Sprive, which links to their bank account to pay off their mortgage.

The amount you pay can change each month, depending on what you can afford.

A new feature on the app means you can also get cashback when shopping to put towards the mortgage.

Linda does the weekly shop at Morrisons and estimates this now generates an extra £30 in cashback a month, which goes straight to overpaying the mortgage.

Linda said: “Our mission is to be as mortgage free as soon as possible, so we want to chip away as much as we can.

“In December I brought the overpayment down, but we will bump it back up in January and February.

“Christmas is expensive, you can’t get away from these rising costs, but where we can cut our cloth to keep up the overpayments, we absolutely will.”

Linda and Steve took out a £263,500 mortgage with a 30-year term to buy their home five years ago.

They started making overpayments 13 months ago as part of retirement planning and in anticipation of other costs, such as their kids – a boy, 11, and girl, nine, wanting to go to university.

The couple has so far paid more than £3,000 extra off their mortgage debt.

Linda added: “We want financial freedom and security in older life.

“We don’t want a huge debt hanging around our neck.”

The family has looked for ways to save extra cash and budgeting to help free up money for overpayments.

They’re currently on track to pay off the mortgage in 2039 if they continue with the overpayments, instead of in 2047.

How overpaying your mortgage works

Most lenders allow customers on fixed rates to make overpayments of up to 10 per cent of the outstanding mortgage balance in a year.

It’s important to not pay more than the 10 per cent because this can trigger hefty early repayment charges.

Graham Cox mortgage broker at SelfEmployedMortgageHub.com said: “Overpaying on a capital repayment mortgage can potentially save you tens of thousands of pounds.

“As 100 per cent of the overpayment amount pays off your mortgage balance, it reduces the total amount of interest you pay, unlike a regular monthly mortgage payment, where a large proportion is interest, particularly in the early years of the mortgage term.

“So the sooner you can overpay, the greater the savings.” 

On a £100,000 mortgage on a 25-year term paying an extra £90 a month would save over £4,800 of interest and see the loan repaid nearly three years early, according to calculations by Halifax.

And even smaller overpayments can still have a big impact.

For example, paying an extra £25 each month on a £250,000 mortgage fixed at a rate of five per cent would save £23,986 over a 40-year term, according to Sprive.

Payments can also be ad-hoc, so if you find yourself with a lump sum or a little extra cash one month, you could consider putting it towards your loan. 

Paying extra on your mortgage while you are locked into a low rate can be a great benefit when you next come to remortgage – especially if it helps you shift into a lower loan to value (LTV) bracket, which typically means lower loan costs.

Lewis Shaw owner of Riverside Mortgages, added: “Overpaying your mortgage is the best way to try and mitigate any rate shocks when your mortgage renewal is due, as it reduces your outstanding balance.”

You don’t need an app to overpay your mortgage and can simply pay directly to your lender.

However, a dedicated tool may help motivate you to make those extra payments.

Sprive shows users how close they are to meeting the next loan to value threshold, for example. 

Earning cashback that goes directly to your mortgage is another way to chisel away the debt.

Sprive has partnered with brands including M&S, Primark, Cost and Uber so that spending through the app will automatically generate cash towards the mortgage.

Accelerate My Mortgage is another free website that works on a similar model, and makes an automatic mortgage payment when you’ve built up a certain amount of cashback.

The downside is that in some cases earning cashback through these sites may mean you are not able to earn loyalty points as usual with retailers.

With rising interest rates, it’s also worth comparing whether you could earn more interest by putting cash in a savings account and then use the proceeds to pay off your mortgage.  

Do you have a money problem that needs sorting? Get in touch by emailing [email protected]