It is very interesting to see the direct effects of making even a small overpayment to any loan or mortgage.
Most mortgages will have clauses within their lending agreements whereby you cannot make more than a certain amount of overpayment to your mortgage per year, or month. This is again mirrored by unsecured debts such as loans, however not with credit cards.
To take a simple example, let’s use a loan amount of £100,000, spread over 25 years (300 months) at an annual interest rate of 4.79%.
The normal payment would be £572.42 – total cost of credit being £71,726.12 – nearly 72% of the original loan.
In this scenario, even a small overpayment of 5% – (£29) – would save you not only 2 years and 2 months of payments, but also £7,203.44 in interest charges. That’s a 10% saving in interest charges, by making a 5% overpayment.
Using our Mortgage Overpayment Calculator you can see the savings for yourself. The great part of this being our animated payments chart – hit play and you will see the difference in payments and the balance of your mortgage over the entire loan term.