Martin Lewis' excellent website www.moneysavingexpert.com has just released its new "Mortgage Overpayment Calculator" - a super-handy tool that allows you to see just how much you could save on interest payments over the life of your mortgage by overpaying even a small amount each month. They announced this on Facebook earlier this week, and there have been a good many comments from folk since advocating overpaying, and sharing just how much they will have saved by doing so. There have been a lot of comments from others though either saying there is no way they could do this, or asking how others manage it. I can't speak for others, but our story is fairly straightforward.
We took out our mortgage as first time buyers in 2003, when we bought this flat. We talked about overpaying then, but did nothing about it. We talked about it a few more times over the next few years too, but it wasn't until a chance conversation with a friend in 2007 that we finally "got it" - he showed me his spreadsheet showing the amount they were saving in interest payments, and how much earlier their mortgage would be clear as a result, and all of a sudden the lightbulb flickered into life!
Although enthusiastic, we started small, diverting an amount that let us feel we were doing "something" while not causing us any problem making ends meet. At the same time we scrutinised the terms of our mortgage to ascertain exactly what we were allowed to O/P - all lenders are different and you need to check whether yours will allow O/P's or you could get hit with penalties. It was good news for us - our deal at that time allowed unlimited overpayments plus the advantage of being able to withdraw the extra we had paid should we need to. With the green light given we set to thinking of ways we could pay a bit more...
There are lots of options- some people opt to transfer savings, with interest rates on savings being so low many folk see this as a better option. We set a rule - we would overhaul our finances and anywhere we could make savings, we would apply that saving to the mortgage. We sorted out the direct debits on our gas & electric, realised we were paying too much, clawed back the credit and cut down the direct debit. We set a budget for groceries, started making sure that everything got used, and cooked everything from scratch. We changed suppliers for TV, phone & broadband and made savings there. The monthly service charge on the flat was reduced a little - and that saving got put against the mortgage too. Basically, every time we managed to make a saving somewhere, we added that amount on to the monthly mortgage payment.
We're now paying more than 50% extra each month, and when we took a new mortgage deal at the end of last summer, we were able to shorten the remaining term by 5 years! Our new deal does have some restrictions on overpayments, but we have a few years to go yet before it will start causing problems, and a plan in place for dealing with it when it does!
If you're still thinking "we could never do that" then go, now, and prove yourself wrong. I've got an easy way for you to get started too - assuming you pay your council tax over 10 months, then this month, and last, you won't have had to pay anything. Last month's, well, let's face it, that's gone, probably a combination of a few extra morning coffees, a Burger King or two, and that sneaky Chinese takeaway, but this months should still be largely untouched. Give your mortgage company a call and start saving yourself money!