Source: Which —
With interest rates hitting heights not seen for years, overpaying on your mortgage is a tempting move that could save you tens of thousands in the long run.
Having the extra cash available to make overpayments isn’t something open to everyone in the cost of living crisis, yet even small increases to your repayments can make a difference.
In the past week, NatWest has doubled its annual overpayment allowance to 20% – meaning mortgage-holders can chip away further into their loans without triggering an early repayment penalty (ERC).
Here, Which? explores whether it’s better to tuck money away in savings accounts or use that cash to overpay on your mortgage. We also delve into the pros and cons of overpayments and show how much interest you could avoid.
NatWest to double mortgage overpayment allowance
NatWest has announced it will increase its annual mortgage overpayment limit from 10% to 20% from next month.
Mortgage customers on fixed or tracker deals can take advantage of the offer, which allows them to overpay twice as much on their home loan.
For example, a borrower with £200,000 left on their mortgage will be able to overpay by £40,000 a year rather than £20,000, before being hit with an early repayment charge (more on this below).
NatWest says it will write to those who make regular overpayments of more than £500 per month, or who use eight to 10% of their allowance each year, to inform them of the rule change.
Why consider overpayments?
The increased limit is positive news for homeowners eager to build up a greater equity stake in their home before their current fixed-term deal comes to an end.
As mortgage rates have soared over the past year, borrowers will be met with huge payments leaps when they come to get a new deal.
The Office for National Statistics (ONS) says more than 1.4 million fixed-rate deals will end this year, and 57% of those ending are on rates below 2%.
As the average two-year fix currently stands at 5.33%, the majority of those remortgaging will be met with rates that are double, or even triple their current deal.
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