Adopting the Dry January pledge for life and diverting the cash savings to your can result in dramatic benefits, according to research by Santander. The banking giant said better use of the cash could both hugely shorten a term and reduce the interest paid.
The average cost of a pint of lager is £4.81, according to figures from the Office for National Statistics (ONS).
Calculations from Santander show that a homeowner putting the monthly price of twelve pints (£57) towards overpaying a 25-year of £200,000 at 4.5 percent over the life of the , would save £12,983 in interest and be -free two years and one month earlier than planned.
For heavier drinkers, the potential savings are even greater.
The average cost of a pint of lager is £4.81 (Image: Getty)
Overpaying £144, the average price of thirty monthly pints, towards the same would save £28,373 in interest and reduce the term by four years and eight months.
Giving up drinking alcohol might be too drastic for many people, but the statistics reveal the benefits of overpaying on a .
Emma Jones, Managing Director at , said: “Making overpayments can be a powerful way to reduce the interest you pay on your and its term.
“It’s good to see Santander relay this fact in a way that resonates with borrowers now, namely Dry January. Even small overpayments can make a massive difference.”
Ben Perks, Managing Director at Orchard Financial Advisers commented: “There’s method in this madness, especially with the price of booze these days.
“Overpayments can reduce what you pay over your term significantly. The trick is to make overpayments regularly throughout your term, though.
“So while a few hundred quid each January will put a little dent in the , it won’t kill it off.”
Craig Fish, Director at Lodestone Mortgages & Protection, said: “It’s surprising how little an overpayment it needs to be to shave several years off your term, and thousands in saved interest.”
But he warned: “Whilst most mortgages do allow overpayments, you should check before doing this just to make sure, otherwise penalties could apply.”
David Stirling, Independent Financial Advisor at Mint Mortgages & Protection, told Newspage: “This is a great idea for borrowers. Usually when an overpayment is made, the interest on the loan is recalculated from that day, meaning that there is a snowball effect from making regular overpayments, as these amounts are coming directly off the capital owed.
“In simple terms you are able to shave years off your term and save huge amounts of interest by overpaying.
“There are several online calculators that help show the impact of even a small overpayment and usually this can be set up as a standing order that the borrower is in control of.
“However, borrowers should also be reminded to try and keep an emergency fund of 3-6 months in savings before being advised to start making overpayments.”
Elliott Culley, Director at Switch Finance, argued that making overpayments should be actively encouraged.
However, he said: ” holders should first prioritise a pot of savings to plan for any unforeseen events as once you make an overpayment you can’t take the money back out of the as easily if you suddenly needed it.”
Riz Malik, Independent Financial Adviser at R3 Wealth, said: “Overpayments are a great way to cut the term of your and potentially save thousands in interest. A lot of people like this flexibility but seldom make the overpayments.
“Even if you overpaid your the equivalent of one extra monthly payment, it could shave years off your repayment date.”