PAY OFF YOUR HOME LOAN 6 YEARS EARLY

OVERPAYING on your mortgage each month could save a fortune in interest and help clear your debt faster.

Interest rates are still ultra-low and unlikely to rise until much later this year, so it makes sense to overpay now while your repayments are cheaper.

Putting this money into a savings account won’t do you much good.

If your mortgage interest rate is 4 pc and you’re a basic-rate taxpayer, you’ve got to find a savings deal paying 5 pc before tax to match the benefit you would get by overpaying on your home loan.

As a higher-rate taxpayer, you’d have to earn at least 6.7 pc on your savings before tax to beat a mortgage rate of 4 pc. This is a tall order since the best internet savings deal is around 1.7 pc before tax.

If you plough your cash into your home loan instead then you could save bucket loads in interest and be mortgage-free far sooner.

With a 25-year £150,000 mortgage at a rate of 3.5 pc, you could shave two years and four months off the term with an overpayment of just £50 a month. You would also save £7,986 in interest.

For those able to set aside a little more, a £150 monthly overpayment on the same loan would reduce your mortgage term by five years and 11 months, and save £19,663.

Overpaying will also help you when interest rates do start to climb as you will be paying a higher rate on a smaller balance.

Equally, when you come to remortgage, banks will be more likely to offer you a cheaper rate because you’ll own a greater stake in your home.

If you are on a standard variable rate — the rate your mortgage reverts to after your fixed deal expires — there are typically no restrictions on how much you can overpay each month.

If you are on a fixed or tracker deal, most banks will let you overpay by up to 10 pc of the value of the loan each year without any charges. So, if you have a £150,000 mortgage, you can pay back £15,000 a year. But always doublecheck with your lender.