It’s a fact that making overpayments to your mortgage can reduce your debt and mortgage term as well as saving you money - over time. But how do you go about doing it?

We all recognise that a mortgage is a huge commitment, involving large sums of money. However, the monthly payments are a cost we are willing to bear for a long period; in some cases, until we retire. Traditionally we tend to pay a mortgage over a number of years. This has traditionally been 25 years; although – more recently, with escalating property values it’s not uncommon today for 30- and 35-year mortgage terms.

Whilst we have had a low interest environment for several years, this is now beginning to change with the advent of rising inflation.

Low interest rates meant that mortgage costs were more affordable and therefore, there was less of an incentive to try and pay off a mortgage earlier than its agreed term. With inflation and increased interest rates, overpaying your mortgage has suddenly become more popular and relevant.

Many of us would love to become mortgage free as soon as possible but what is the reality and how can it be done? The answer is quite simple; the more you pay – on a monthly basis, the quicker the mortgage balance reduces and of course - the less you will pay back in interest.

If you are considering making mortgage overpayments, you need to contact your lender to see what limits they have and this will depend on the mortgage product or deal that you have in place. In general lenders allow a certain percentage of the mortgage to be repaid each year. Typically this is 10% if you are on a fixed rate deal.

One important aspect to consider, before embarking on any mortgage overpayments, is that of the repayment of any unsecured debts first such as credit card balances. This is because, by its very nature, a secured debt such as a mortgage is always cheaper than unsecured borrowing.

Making overpayments has a number of benefits. First of all, it shortens the mortgage term whilst increasing your equity level. The consequence of this being that should you decide to look for a new mortgage deal in the future you are likely to benefit from more options and lower interest rates. Lenders generally offer better rates for a lower, loan- to – value (LTV).

Secondly, overpaying now and reducing the term could save you a fortune in interest. Example: On a mortgage of £100,000 with a remaining term of 25 years and an interest rate of 2%; if you paid an additional £50 per month, you would save £3820 in interest! Furthermore, the mortgage term will reduce by three years and one month.

When it comes to mortgages there’s a fair bit to consider and regardless of what stage you are at, it’s always worth speaking with an independent mortgage advisor, such as Dunham McCarthy, who can equip you with the necessary information to help you make the right decision for you.