Easy way to cut four years off your mortgage without even noticing
HOMEOWNERS can slice years off their mortgage and save thousands of pounds in interest with a free new app.
Mortgage rates have rapidly risen in recent weeks and are set to rise further if the Bank of England hikes interest rates again, as expected, next month.
However, worried homeowners can save on mortgage interest by being clever with any spare cash left over at the end of the month.
Sprive.com links to your bank account to give you an easy way to put this extra money, which changes each month, towards overpaying your debt.
In months where there is more surplus cash, the free app will take extra from your account.
And when money is a little tighter, Sprive will leave more.
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The app says its users are on track to save an average of £10,000 on their mortgage and pay off the loan four years faster.
Minimum and maximum monthly payments are decided by users at the outset and the app will then work within those boundaries to take money each month.
However, the minimum repayment must be at least £25, which Sprive says works out as less than £1 a day, and homeowners can pause payments entirely for the month if they need to.
Before the lender is paid, borrowers also have the chance to put money back into their account, if the cash is needed, or confirm that it goes to overpaying.
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Most mortgage lenders allow customers to make additional payments on their mortgage by 10 per cent of the outstanding debt each year.
It's important to keep this in mind, or you may be hit with early repayment charges.
How much could it save you?
There are huge long-term benefits for homeowners who have enough spare cash to make these regular overpayments.
For example, paying an extra £25 each month on a £250,000 mortgage fixed at a rate of five per cent would save £23,986 over a 40-year term, according to calculations by Sprive.
In this scenario, a borrower would become mortgage-free two years and five months earlier.
Putting extra cash towards a mortgage also helps borrowers move into a lower loan to value faster – which usually means lower rates when you are ready to fix into a new deal.
How does Sprive work?
Sprive shows users their current loan to value and how close they are to the next threshold to help spur them on.
It also searches the market daily for new mortgage deals so users can see the best rates available for their circumstances.
The app will link borrowers up with a preferred broker if they decide to swap to help them through the process.
Sprive isn't the only online service to help you slice years off your mortgage.
For example, the Accelerate My Mortgage website, which launched in 2020, is another free option to help you get out of the red early.
The service makes automatic mortgage overpayments once you've built up a cashback balance by shopping at certain retailers.
Experts said rising interest rates make now an excellent time to overpay on your mortgage.
Aaron Strutt from mortgage advisers Trinity Financial said: “Rapidly increasing mortgage rates has scared a lot of people and many of them will want to get their mortgage balance reduced quicker.
“Many borrowers will be more tempted to make overpayments while lots of homeowners with smaller loans will probably pay them off.”
Overpaying mortgages can be especially suitable for homeowners whose income fluctuates significantly - for example, someone working overtime or on commission.
When there is extra money in a month, it can be a good time to pay back more to your lender.
Borrowers don’t actually need an app such as Strive to make overpayments – you can just give money straight to your lender.
However, an app may give you the extra push to pay off the debt.
Jamie Lennox, director at Dimora Mortgages, said: “Overpaying on your mortgage can have a real impact on your mortgage over the full term, often savings of thousands of pounds and years taken off your mortgage.
“Borrowers I see often have the best will in the world but arranging a regular overpayment never materialises.
"Having an app where customers can visualise the impact of their overpayments is the key to encourage more people to do this.”
As interest rates go up, it’s worth looking at how much cash will make in a savings account compared to interest saved on a mortgage.
Then work out which is the best route for your situation.
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Jane King, adviser at Ash Ridge, said: “The upside of interest rates rises is that savers’ rates will be increasing and so if your money makes more by being held in a deposit account than it does by reducing your mortgage then it would make sense not to overpay and save instead.
“This has the additional advantage of the money being accessible in case of an emergency, which it is not if it's used to overpay a mortgage.”