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Martin Lewis urges all homeowners to make simple check that could save them hundreds of pounds a year

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The Money Saving Expert is back with more tips to help us cut costs during what is becoming a difficult financial time for many families. Martin Lewis releases a newsletter with handy tricks to save money as the cost of living crisis continues. Lots of households will be worse off as bills soar.

Luckily, Martin has found a way to save hundreds of pounds a year with his mortgage calculator. It turns out, overpaying your mortgage can save you more money than adding to a savings account. Lewis said: “If you’ve got debt, especially costly debt, clearing it is often better than saving. After all, a grand in top savings pays £20/yr, while the same owed on a 20 per cent credit card costs £ 200/yr.

“Clear the debt with the savings and you’re £180+ better off (& in emergencies, you can always borrow back on the card).” The same applies to mortgages, though there are a few tricky conditions to tackle. Mortgage rates tend to be lower than other debt rates.

READ MORE: Martin Lewis urges parents to open special savings account for kids that pays out way more than standard accounts



Londoners with a mortgage could save hundreds of pounds

Martin said to ask yourself: “Is my mortgage rate higher than the highest rate I can earn in savings?” He added: “If it is, it’s likely to be worth overpaying the mortgage rather than saving, providing you can do so without penalties. Though I’d always put cash to pay three to six months of bills aside in savings first, as an emergency funds.”

It boils down to debt versus savings: if you earn one per cent interest on savings but your interest rate on mortgage debt is two per cent then it’s better to pay off that debt because the amount of interest building on your debt is going to be bigger than interest you can earn on your savings. Take a look at the examples below that MyLondon has found using Martin Lewis’ mortgage calculator.

Before overpaying a mortgage, first check that your lender allows you to overpay it without penalties. There may also be limits to how much you can overpay. Usually there is no limit if you’re on your lender’s standard variable rate or you’re on a tracker mortgage.

Fixed-rate mortgages usually have an annual overpayment limit of 10 per cent of the total outstanding mortgage balance. Homeowners must also make sure that any overpayment made goes to reduce the debt (so shortening the term) rather than reducing monthly payments. Lewis’ calculator assumes you reduce the mortgage debt, which is the main benefit of overpaying.

If your mortgage debt is £200,000 and you overpay by £50, the mortgage calculator states: “Overpaying would save you £8,211 in interest alone, and mean you pay the debt off in full 1 year & 10 months earlier. Normally you repay £ 1,002 per month. If you regularly overpay £50, you’d be mortgage free 1 year and 10 months earlier. Your total payment over this period would be £292,266.”

If your mortgage debt is £400,000 and you overpay by £200, the calculator says: “Overpaying would save you £30,283 in interest alone, and mean you pay the debt off in full 3 years & 4 months earlier. Normally you repay £2,003 per month. If you regularly overpay £200, you’d be mortgage free 3 years and 4 months earlier. Your total payment over this period would be £570,671.”

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Use Martin Lewis’ mortgage calculator to see if you would benefit from overpaying.

Got a story you think we should write? get in touchbeth.gulliver@reachplc.com

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