Mortgage expert explains how extra £100 payment can save you £17,000 | Personal Finance | Finance

Homeowners making £100 worth of mortgage overpayments per month could knock thousands of pounds off their loans, an expert has said.

People overpay a mortgage when they voluntarily pay more than the minimum monthly repayment amount they’ve agreed with their lender, offering a way to reduce overall interest and loan duration.

Fiona Peake, mortgages expert at Ocean Finance explained to Express.co.uk: “The current mortgage market is challenging for many borrowers. Interest rates have risen sharply over the last couple of years, and while we’ve seen some stability recently, average fixed rates are still much higher than they were in 2021.

“For example, a typical two-year fixed rate currently sits around 5.9%, compared to around 2% just a couple of years ago. This has left many homeowners paying more each month, particularly if they’ve recently come off a low fixed rate.

“If you’re in this situation, overpaying can feel daunting but even small, regular overpayments can make a noticeable dent over time.”

However, Ms Peake pointed out that, while mortgage overpayments can offer “excellent long-term savings” and “financial security”, they’re not a one-size-fits-all solution.

She urged: “Before making overpayments, review your budget, understand your lender’s rules, and weigh up other financial priorities. If in doubt, speak to a mortgage advisor who can guide you based on your unique circumstances.”

Explaining the benefits of overpaying a mortgage, Ms Peak said: “It’s a great way to save money in the long term and take charge of your finances. By reducing the interest you pay over the life of your loan, you can potentially save thousands of pounds, shave years off your term, and build equity in your home faster.

“For example, if you have a £200,000 mortgage at 5% over 25 years, overpaying just £100 a month could save you nearly £17,000 in interest and cut your term by around four years.

“Double that to £200 per month, and you might save over £30,000 while paying off your mortgage eight years early.”

Beyond the numbers, overpaying can also bring homeowners more flexibility.

Ms Peake explained: “It’s about creating breathing room for the future. Paying off your mortgage faster frees up money for other priorities, whether that’s retirement savings, family plans, or simply building a financial cushion.

“And with rising interest rates, reducing your mortgage balance sooner could help if you need to remortgage at a higher rate in the future.”

However, there are a number of important factors to consider before opting for this strategy. Firstly, people should check their overpayment terms with their current mortgage provider.

Ms Peake said: “Many lenders cap how much you can overpay annually without incurring a penalty – usually around 10% of your outstanding balance. If you exceed this, you could face Early Repayment Charges, which can wipe out the benefits of overpaying. Always check your mortgage terms or contact your lender for clarity.”

Secondly, people should focus on build a savings safety net first. Ms Peake explained: “Before you redirect spare cash towards overpayments, it’s wise to have an emergency fund in place.

“Aim for at least three to six months of essential expenses saved in an accessible account, so you’re not caught short if unexpected costs arise.”

Ms Peake also suggested considering other financial goals, as reducing a mortgage term “isn’t always the best option”.

She explained: “For example, if your interest rate is low and you have high-interest debt like credit cards, prioritising that debt will be more cost-effective. Similarly, if your employer offers a generous pension match, putting extra money into your pension could give you a better return than overpaying your mortgage.”

Finally, the mortgage expert urged not to forget flexibility. She said: “Overpaying your mortgage often means tying up cash in your property, which isn’t easily accessible if you need it.

“If your lender offers an offset or flexible mortgage, you might be able to access overpaid funds in the future, but this isn’t always guaranteed.”

An overpayment mortgage calculator can offer tailored calculations based on individual circumstances.