As house prices continue to rise, increasing numbers of borrowers are going for ever-longer mortgage terms.
While borrowers would traditionally opt for mortgage terms of 25 years, it’s now far from uncommon for lenders to agree to deals lasting 30 or even 40 years.
The obvious selling point for borrowers is that by stretching their mortgage term, they make the monthly repayments more affordable.
The trouble is that in doing so, they saddle themselves with a massive debt virtually until they retire.
A new site has launched offering borrowers an easy way to pay the mortgage off a little quicker, potentially saving significant amounts in the process.
How Accelerate My Mortgage works
Accelerate My Mortgage is a new cashback website, but with one key difference.
Rather than the cashback you earn when you shop with the likes of Papa John’s and John Lewis going to you, it instead goes to your mortgage lender.
This is on top of your regular monthly mortgage payments.
As with other cashback sites, the rates of return vary massively between different stores. While some will hand you a whopping 15%, others pay up to 1%.
Getting ahead with overpayments
The size of your monthly mortgage repayments is determined by the size of your loan, the interest rate and term of your mortgage.
But most mortgage deals allow you to pay a bit extra each month, above your normal repayment.
This can be a fantastic option for borrowers. By paying more than you have to, you can reduce the time taken to pay the mortgage off in its entirety. And in doing so, you pay far less interest on your mortgage.
I’m doing it myself by paying an extra £140 a month on my mortgage, which will trim a good few years off my mortgage term.
Let’s take an example. Say I had a £200,000 outstanding mortgage on a 30-year term at an interest rate of 3%. My monthly repayment would be around £843, and overall that loan would cost me around £303,500.
That’s more than £103,000 in interest.
Now let’s say I instead paid £943, an overpayment of £100 each and every month. Doing so would mean I paid the mortgage off four years and nine months early, and cut the amount paid in interest by a massive £18,244.
Is there a cap on overpayments?
Importantly, while lenders allow overpayments, there is a cap on how much you can pay above your normal repayment.
This is usually around 10% of the outstanding mortgage balance.
If you repay more than that, then you’ll have to pay early repayment charges, which are calculated as a percentage of your outstanding balance and can end up seriously punitive.
What’s the catch?
Thankfully, Accelerate My Mortgage is entirely free to use, so every penny in cashback you build up goes directly towards paying down your mortgage balance.
The business is run by a mortgage brokerage called RateSwitch. When you register, you have to share the details of your existing home loan, including when any fixed or variable term comes to an end.
And that’s where they hope to make money.
The idea is that you are more likely to use RateSwitch when it’s time to remortgage or if you need a further advance, and they then get paid a commission (called a proc fee) by the lender they place you with.
But there’s no obligation to use them.
Would I use it?
I’ve been a big advocate of cashback websites over the years and have brought in hundreds of pounds through the smallest tweak to my online shopping habits.
But have I spent the cashback I’ve earned properly? I’m not so sure ‒ I’ve moved it into my bank account and then it’s disappeared, never really being spent on anything in particular.
Now if every time I got a pay-out that money had gone towards paying off my mortgage, I’d have something tangible to show for it, with another couple of months trimmed off the time until I’m mortgage free.
Of course, it goes without saying to make sure any purchasing decisions are not influenced by the cashback on offer.
At the moment, there are only 45 retailers on Accelerate My Mortgage, with more promised on the way – but I think it’s a really smart idea and one I intend to take advantage of.