Putting bonuses into mortgages can save £1,000s
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Investing bonuses in mortgage saves £1,000s
Monday, 29 Jan 2007 15:40
Britons choosing to invest even a small annual bonus into their mortgage could see their loan paid off as many as three years sooner and save themselves thousands of pounds in repayments.
That is according to figures released today by mortgage broker CharcolOnline.co.uk that show even a £2,500 bonus paid into a mortgage can result in the loan being paid off more than a year sooner as well as shaving almost £5,000 from repayments over the term of the loan.
By contrast, a £15,000 overpayment can knock more than three years from a mortgage term, and save the borrower £26,500 on mortgage payments.
"Most borrowers will have the ability to overpay their mortgage without incurring any early repayment charges (ERCs), and some may not be aware of this," said Katie Tucker of CharcolOnline.
"The most common amount which can be overpaid, without incurring ERCs, is ten per cent per annum, but some lenders allow unlimited overpayments which means that in most cases a large chunk of the mortgage can be overpaid.
"However, borrowers must be aware of any conditions when overpaying as breaching any terms could result in a large penalty. My advice would always be to check with your lender before making an additional payment."
And shortening the mortgage term is not the only benefit of making overpayments.
Ms Tucker points out if your mortgage has flexible features, overpayments can be re-borrowed at a later date. This allows mortgage holders to "park" large bonuses, saving interest until the money is needed later on.
"Making a single overpayment on a mortgage has a clear benefit in the long-term," she said.
"Those who choose to use some of their bonus every year to overpay on their mortgage will naturally see an even bigger effect.
"Additionally, the payment does not necessarily need to be made as a lump sum; if you have had a salary increase you may now be able to make a monthly overpayment which is just as beneficial."
The savings to be made on overpayments:
| Mortgage size | Bonus amount | Savings realised | Years cut from term |
| £300,000 | £20,000 | £35,300 | 2 years, 8 months |
| £250,000 | £15,000 | £26,700 | 2 years, 6 months |
| £200,000 | £15,000 | £26,500 | 3 years, 1 month |
| £150,000 | £5,000 | £9,000 | 1 year, 4 months |
| £100,000 | £2,500 | £4,684 | 1 year, 1 month |