"Is it worth using my savings to repay my home loan?"

It’s a tempting thought, when your savings are lying around doing very little on pitiful rates, but mortgage costs don’t seem to have tumbled nearly as much. Here are My IFM’s four ways to make sure you’re overpaying the right way.

1 Clear your credit cards and your loans first, as they’ll be costing you more

2 Think of overpaying your mortgage as a form of saving

If your mortgage rate’s higher than after-tax savings interest you’ll profit by overpaying it rather than building savings. Think of overpaying your mortgage as  form of saving. For example, if you are repaying a 5% mortgage, to earn £500/year after tax on £10,000, a basic rate taxpayer needs an account paying 6.25%, higher rate 8.33% & top rate 10%.

These are phenomenal, gobsmacking, unheard of amounts that you simply can’t get safely in any normal account, which shows just how profitable overpaying a mortgage can be.

Working out the savings made by overpaying your mortgage isn’t simply a matter of chopping the lump sum repayment from your balance. It cuts future interest and hopefully will mean you’re mortgage free much earlier.

3 Leave sufficient emergency cash

Once your cash is tied up in your house, you could be down to the credit cards if a pipe bursts or the boiler leaks.

And remember, even if you overpay, your lenders will still charge you for being in arrears later.

So it’s always a good idea to keep an emergency fund is savings – three to six months worth of cash is a good guide, enough to live on if you lost your job or had other issues. If you’re thinking of using newly arriving extra income (e.g. pay rise) to overpay your mortgage then build up an emergency fund first. As a minimum…

 4 Time mortgage overpayments correctly

Mortgage companies have three ways of calculating the interest you owe – daily, monthly or annually. Check your mortgage to see which it is. Thankfully, the majority of new mortgages are on daily interest, which is better for you as an overpaying borrower.

The less frequent their calculations, the more important it is to plan the timing of your overpayments. With, monthly, and especially annually, calculated mortgages, it’s crucial to time any extra repayments correctly for one simple reason.

Mortgage overpayments will only count AFTER the calculations made. Put it in at the wrong time and you’ll miss out.

For advice and guidance on making the most of mortgage overpayments, give My IFM a call on 0845 0669432.