Save thousands and repay your home loan a year early

HOMEOWNERS could repay their mortgages a year earlier if they diverted money they saved from the recent National Insurance cut into overpaying their home loan, experts say.

Cuts to National Insurance contributions came into effect on January 6, and will reduce the amount paid by the average employee by £450 a year.

Some 27 million people have seen a 2p cut to their NICs after the Chancellor, Jeremy Hunt, reduced the rate from 12 pc to 10 pc in the Autumn Statement last November.

Now calculations from high street bank Santander suggest that a worker on a salary of £30,000, who put their full NI saving of £29 per month towards their mortgage, would save £7,405 in interest.

They would also become mortgage-free more than a year earlier than planned. This is based on 25-year mortgage of £200,000, with an interest rate of 4.7 per cent.

Santander added that overpaying even £10 per month would make a difference, allowing the same customer to reduce their total interest bill by £ 2,500 and shave four months off their mortgage term.

To unlock the total saving they would need to keep up these extra repayments for the term of the mortgage, even if the rate of NICs changed. The calculation also assumes the same mortgage rate for the duration of the term.

graham Sellar, of Santander, says: ‘For those able to, using this extra money each month to overpay on their mortgage could reap huge benefits in the long run, saving thousands and helping them achieve the mortgage-free dream sooner than expected.’