The MoneySavingExpert founder said he’s often asked whether it’s better to overpay a mortgage rather than save, and said while there is no textbook answer, sometimes it can be worth considering. In some cases, the expert said it’s possible to make “monumental savings”.
Answering a question from Linda who called in to ask Martin Lewis if her son should overpay his mortgage, Martin said it depends on whether someone’s mortgage rate is higher than their savings rate.
On the show he explained: “Linda we talked about overpaying £20,000 – we can’t actually do that because that would be over 10 percent of your mortgage, so i’m going to go for £17,000 on an overpayment.
“Now the overpayment saving by doing that now on the very cheap mortgage rate that he has would be £5,500 compared to over the same period in savings he’d make £11,000 in interest in a savings account.
“So that’s because savings rates are about 2.5 percent easy access. I haven’t even gone to fixes that pay more and your mortgage rate is a lot lower at 1.1 percent.”
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Martin said the mortgage market could bounce back but it’s hard to tell without a crystal ball.
For those who are “risk averse” he suggested a fixed deal could be the best option as soe people’s mortgages are going to increase by a shocking amount.
On Good Morning Britain a couple of weeks ago he explained: “First of all because for every one percent your mortgage goes up you’re paying £600 a year more per £100,000 of mortgage.
“They’ve already gone up three percent compared to last year so that’s £1,800 – if it goes up another three percent that’s £3,600 a year per £100,000 of mortgage and many peoples’ mortgages are bigger.”
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Mr Knott added: “For some homeowners it will make clear sense to accept short term financial loss, to pay the early repayment charges to secure a rate now.
“However, whether this is the correct financial decision will depend upon the individual circumstances.
“Considerations include a homeowner’s current interest rate, early repayment charges, what other products are available to them right now, the date that their current deal ends and the anticipated rate rises.
“The tipping point as to whether remortgaging early is the correct decision financially will be different for everybody.
“A mortgage expert can complete calculations for you, of which will then allow you to make an informed and balanced decision.”
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.
The Martin Lewis Money Show returns on ITV next Tuesday from 8pm.