The series of coronavirus lockdown restrictions in the past year have meant major lifestyle changes. And while millions have sadly felt the financial impact of the Covid pandemic, some have fortunately found themselves making savings while being ordered to stay at home.
According to the Mental Health Report by digital financial coaching app Claro, created in partnership with Mental Health UK and The Money Charity, 20 percent of Britons used lockdown as an opportunity to improve their financial situation.
Meanwhile, research by financial services mutual Wesleyan found that savers have pocketed an average of £35 a month more during the pandemic, with average monthly savings increasing from £240.23 before the pandemic to £276 a month since.
Homeowners fortunate enough to have made accumulated savings during lockdown may wonder whether using this cash to reduce their mortgage term could be right for them.
It’s something which James Andrews, senior personal finance editor at www.money.co.uk recently discussed.
Speaking exclusively to Express.co.uk, he explained mortgage overpayments could be beneficial for some homeowners.
“Using any savings accumulated during lockdown to overpay on your mortgage can be a shrewd move for homeowners looking to clear their debt sooner,” Mr Andrews said.
“Overpaying on a mortgage can also save you thousands of pounds in interest charges.
“For example, a monthly overpayment of £200 on a £200,000 mortgage could save you £21,622 in interest.
“You would also clear your debt and be mortgage-free five years and 11 months quicker.
“This example is based on an interest rate of three percent, and a 25 year term.”
However, Mr Andrews did issue a warning when it comes to overpaying on a mortgage.
“There are a couple of points to be careful of, though,” he began.
“First, most lenders set a limit on how much you can overpay penalty-free – typically £500 a month or 10 percent of the total loan each year.
“Go above that amount and you could be hit with charges.
“Second, some mortgages also let you re-borrow money you overpay – meaning rather than being lost, money spent overpaying on your mortgage is effectively sitting in a savings account paying you the same interest as you’re being charged on your home loan.
“If yours doesn’t allow this, it’s wise to keep back some savings rather than put it all towards your mortgage.
“The last thing you want is an unexpected bill meaning you have to take out expensive credit, far outweighing the savings you make on your mortgage.”
For those unsure about whether it’s right for them, using an online mortgage overpayment calculator may help with the decision.
“In order to assess how your lockdown savings could help towards paying off your mortgage, money.co.uk has a mortgage overpayment calculator that can reveal how your term and interest payments could be reduced,” Mr Andrews said.
“Simply enter in details regarding your outstanding balance, remaining mortgage term, annual interest rate, whether you’d like to pay recurring or one-off overpayments (or both), and how much you’d like to overpay by.”
This post originally appeared on Daily Express :: Finance Feed