One advantage of Flexible mortgages is that they allow you to make extra payments. This means that paying extra each month, or making a one off lump sum payment the mortgage will be paid off sooner. If you can afford to do this then you will pay off your mortgage earlier and save significantly on the total cost of your mortgage.
When you decide whether to make extra mortgage payments you need to be aware of two things:
- How much will you save by making the extra payments?
- Is there a better use of investing the money?
Alternatives, to paying extra mortgage payments include:
- Investing in shares / building society
- Paying off other debts.
- Having more money to spend
This table below shows some examples of potential savings, through making extra payments.
Example 1: £140,000 mortgage: Interest rate 6%. Mortgage Term 25 years.
Monthly overpayment Current Payment New Payment Total cost saved New time Span £50 £902 £952 £16,193 22.2 years £100 £902 £1,002 £29,667 20 years £150 £902 £1052 £39,667 18.3 years
Example 2 : Mortgage Term: £100,000: interest rates 7%: Mortgage Term 30 years
Monthly overpayment Current Payment New Payment Total cost saved New time Span £50 £665 £715 £31,193 24.2 years £100 £665 £765 £50,500 20.6 years £150 £665 £815 £63,317 18 years
Clearly the biggest savings occur on mortgages with the longest time span left.
When you make extra payments, you not only reduce the capital balance, but, also reduce future interest payments. In a way you benefit twice.