Martin Lewis' mortgage rule that's already saved one savvy homeowner £35,000
18.04.2024 - 13:19
/ manchestereveningnews.co.uk
Paying off the mortgage is the goal of every homeowner and after the past few years of interest rate hell, that goal has started to seem more and more distant for many. But there is one "rule of thumb" popularised by finance guru Martin Lewis that has led to some knocking thousands of pounds off their mortgage.
In his weekly Martin Lewis Podcast, the Money Saving Expert founder shared his answer to one of the most common questions he gets from homeowners - Should I be using my money to save or should I be using it to overpay the mortgage? Mr Lewis said readers who have followed his advice have seen "gobsmacking savings" on their mortgages
The answer is not immediately obvious. Currently, some savings accounts offer up to seven per cent interest on deposits, while, depending on the loan-to-value ratio of the mortgage, current interest rates on properties are between 4.3 per cent and 5.9 per cent - leaving many unsure if they are better off saving their money, or paying down their debts.
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Speaking on his podcast, Martin Lewis explained: "The very simple rule of thumb... is if your mortgage rate is higher than you can earn in savings, then overpaying mathematically adds up.
"Let's oversimplify this, if you have £10K in savings earning 4 per cent interest, you are gaining £400 a year. Or, if you were paying tax on your savings because you have gone over the personal savings allowance, you would be earning £320 a year after tax.
"If you took that 10k and used it to overpay your mortgage, and your mortgage rate was at six per cent, then it would save you £600 in interest, so you would be, back of the envelope, £200 a year