Mortgage costs will surge for hundreds of thousands of borrowers who are coming to the end of their fixed rate mortgage this year.
Some 800,000 fixed mortgages will expire by the end of 2023, according to UK Finance, with borrowers facing significantly higher mortgage rates following 14 consecutive Bank of England base rate rises.
Those with cash available may opt to try to save money in the long run by making mortgage overpayments.
Increasing numbers of homeowners are making overpayments on their mortgages to reduce debt and improve loan-to-value ratios, according to national advice firm Continuum.
Paying even more to a mortgage lender than is necessary can be 'painful' an expert warned
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More and more of the firm's clients are paying back more than the minimum requirement, with some making one-off lump sum payments while others make regular monthly payments above the minimum amount.
Anthony Harris, independent financial adviser at Continuum, said: “In simple terms a mortgage overpayment means the money you borrowed is being paid back quicker.
“Overpay by enough, and you could clear your mortgage several years faster. You become mortgage-free sooner – and because you have cut the number of years when you are paying interest, you pay much less overall.”
As well as clearing the mortgage sooner than expected, borrowers can cut their property’s loan-to-value (LTV).
Mr Harris explained this means “you may be able to secure better rates when it becomes time to take on a new fixed deal”.
He added: “Paying even more to your lender than is necessary each month can be painful. But it could be very worthwhile.
“The higher the rate, the bigger the savings with an overpayment – so the increase in mortgage rates actually makes overpayment more worthwhile.”
For example, making a one-off overpayment of £10,000 on a mortgage debt of £250,000 over 25 years at a mortgage rate of two per cent would save £6,257 interest over the lifetime of the mortgage and cut the term by a year and three months, the independent financial adviser said.
The same £10,000 overpayment with a mortgage rate of six per cent would save £31,723 over the lifetime of the mortgage, reducing the term by two years and one month.
However, it’s important to be aware mortgage overpayments are not right for all homeowners, and experts warn it is crucial people check they have enough savings in an emergency fund first.
Mr Harris said: “Overpaying looks tempting, but it is not for everyone. You can’t leave yourself with no spare cash.
“It is vital to have enough in savings in case of an emergency. And if you have more expensive debts, such as credit cards or loans, you should clear them first.”
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With interest rates having risen, it’s also important people check they aren’t better off putting money into a high-paying savings account.
Mr Harris said: “Remember, many banks are offering the best deals on savings accounts in years. You need to be sure you would not be better off putting any spare money aside in a savings account.
“Working out what’s best for you means not only looking at whether the savings rate is more than the mortgage rate, but to factor in any tax on the interest, and looking at your personal savings allowance.
“If your mortgage rate is close to, or higher than, a savings rate you can secure, then it is a good idea to overpay. Overpaying your mortgage could be better for you than paying tax on interest from savings.”
It’s also important to check what overpayments the lender will permit.
Lenders typically limit the amount people can overpay on fixed-rate deals to 10 per cent each year.