New cashback scheme could help you knock thousands off your mortgage

The public lockdown amid the coronavirus pandemic has restricted our lives in ways previously unimaginable. 

Stockmarkets have plunged, companies in every sector could need billions in government bailouts to survive and high streets are deserted. 

The Bank of England has been forced to slash interest rates to near zero in a bid to shore up confidence, pushing savings rates even lower. 

There have been some unexpected winners in this national emergency however. The supermarkets have seen huge spikes in demand and online shopping – particularly for those stuck at home with a lot of time on their hands – is up.

While most of the country is understandably fearful about their finances, one company has come up with an innovative way to help homeowners save money on their mortgage without spending more than they already are.  

The ‘new Accelerate My Mortgage’ service from broker Rateswitch rewards you with cashback on online purchases that goes towards paying your mortgage off early. 

So far some 46 different retailers have signed up to the ‘Accelerate My Mortgage’ scheme 

Not only does overpaying on your mortgage each month curb the amount you end up repaying overall, it can mean you’ll be mortgage-free years sooner than you would be otherwise.   

And some of the UK’s best-known retailers including Iceland, Superdrug, Boots, Asos, Sports Direct and John Lewis have already signed up.

But can you earn enough cashback shopping online – especially just now – to make a dent in your mortgage? And are there any downsides to paying off your loan early? We take a look.

How does it work?

The reward system works in a similar way to cashback websites like TopCashback or Quidco. 

Purchasing through certain online retailers through Accelerate My Mortgage’s website will earn you cashback, which is then automatically used to pay down your mortgage debt in chunks of £50.

Some 46 retailers have signed up so far, including brands such as Asos, Boots, Currys PC World, Footasylum, John Lewis and Sports Direct.

Each retailer offers a different return – Currys for example only offers 1 per cent cashback, while a purchase at Moonpig will result in 15 per cent cashback. 

The scheme also offers an extra £25 reward off your balance if you refer someone else and they then go on to remortgage with Rateswitch.   

What’s the catch?

The service is entirely free to use, and all of the cashback goes towards paying down your mortgage balance.

Rateswitch is a mortgage broker. When you sign up, you’ll have to give them the details of your home loan, including when it comes to an end.

When you come to remortgage, if you do it through Rateswitch, they’ll earn commission from the mortgage lender for bringing them business. 

This is how they make their money – but the borrower isn’t under any obligation to use them, and can use Accelerate My Mortgage without committing to remortgage through Rateswitch in the future.

Is it worth it?

Overpayments have a unique multiplying effect on your mortgage.

Every time you make one, the payment is reflected in your mortgage balance immediately and this stops interest continuously building up on the outstanding amount you owe.

So making regular overpayments means you’ll be mortgage-free more quickly, but you could also save thousands of pounds in interest over the course of the loan. 

For example, a borrower with a £100,000 mortgage over a 20-year term at the average two-year fixed rate of 2.43 per cent would save £1,092 in interest if they overpaid by £50 every three months. They’d also pay their mortgage off nine months early.

If they overpaid by £50 every month rather than every three months, they’d save £3,048 in interest over the life of the mortgage.

Because of the way that overpaying curbs interest accruing, the higher your mortgage rate, the more you save.

Large one-off purchases such as a new sofa or week abroad can offer cashback of around £75

 Large one-off purchases such as a new sofa or week abroad can offer cashback of around £75 

For example if the same borrower had a higher mortgage rate of 3.5 per cent, overpaying by £50 a month would save them £4,712 in interest over the life of the mortgage and would see them pay off their debt in full two years and two months earlier. 

Which retailers currently offer cashback? 
American Golf – up to 5% cashback
AO – up to 2.5% cashback
ASOS  – up to 10% cashback
Avis – up to 8% cashback
Beer Hawk – up to 7% cashback
boohooMAN – up to 7% cashback
Boots – up to 5% cashback   
B&Q – up to 3% cashback
Clarks – up to 3% cashback
Currys PC World – up to 1% cashback
Debenhams – up to 1% cashback 
Dorothy Perkins – up to 6% cashback 
Footasylum – up to 4% cashback
Groupon – up to 9% cashback
Habitat – up to 2% cashback
Hamleys – up to 4% cashback
Hotels.com – up to 6% cashback
Iceland – up to 3% cashback
John Lewis – up to 7% cashback
JustPark – up to 6% cashback
Love Energy Savings – up to £50 cashback
Made – up to 7% cashback 
MandM Direct – up to 10% cashback
Muscle Food – up to 7% cashback
Music Magpie – up to 7% cashback
NCP – up to 5% cashback
Nike – up to 4% cashback
Not On The High Street – up to 3% cashback
On the Beach – up to 6% cashback
Opodo – up to 7% cashback
Papa John’s – up to 1% cashback
Pizza Hut – up to 5% cashback
Schuh – up to 3% cashback
Scribbler – up to 9% cashback
See Tickets – up to 5% cashback
Sports Direct – up to 1% cashback
Superdrug – up to 2% cashback
Tastecard – up to £5 cashback
Topman – up to 15% cashback
Trainline – up to 3% cashback
Travelzoo – up to 6% cashback
Vistaprint – up to 9% cashback
Vodafone – up to £10 cashback
Waterstones – up to 4% cashback 
Wilko – up to 2% cashback
Zavvi – up to 8% cashback

Chucking in an extra £50 so they paid £100 off a month would save them £8,393 in interest over the life of the loan.

So overpaying really can make a difference – but will the cashback earned through Accelerate My Mortgage be enough on its own?

Earning 1 per cent cashback on £20 worth of Papa John’s pizza will earn a measly 20p reward – hardly enough to put a dent in your mortgage.

Similarly the 2 per cent cashback that M&S would reward on an £80 shop would result in just £1.60 worth of cashback.

But larger one-off purchases can make a difference. Buying a new sofa from John Lewis worth £1,099 through Accelerate My Mortgage’s portal would earn £76.93 in cashback.

Spending £1,157 on a week in Paris (when the coronavirus lockdown comes to an end) booked through Hotels.com would reward the borrower with £69.42 cashback. 

Remember, the value of the cashback also comes in the form of interest saved. On a 3.5 per cent mortgage over 20 years, this £69.42 is actually worth £96.63, as paying it off early would save £27.21 in interest. 

Can I make unlimited overpayments?

All mortgages differ in how much you can actually overpay. 

Most deals come with what are known as early repayment charges, which levy a fee if the borrower were to overpay by more than their allowance – typically 10 per cent of the remaining loan per year.

This is a way for lenders to tie you in to your deal and recoup the interest it’s losing if you repay earlier than expected.

This is unlikely to make a difference with cashback deals like Accelerate My Mortgage. On a £100,000 mortgage with early repayment charges over 10 per cent you’d need to overpay by more than £10,000 a year to incur a penalty.

The closer you get to paying off your mortgage and the more you overpay will take you closer to your limit, however. 

Generally, these charges have more of an impact if you’re remortgaging away from your current deal early. In this case you could incur a larger penalty.

For most mainstream lenders the penalty is usually only levied on the amount you overpay by.

For example, Halifax states: ‘If the total amount you overpay during the year exceeds 10 per cent, we’ll only charge you an early repayment charge on the proportion you overpay above 10 per cent.’ 

So using the above example, if a borrower had already reached their overpayment allowance for the year and received £50 cashback as an overpayment to their mortgage, the early repayment charge payable would be a percentage of this £50. 

If the charge was 2 per cent for example, the penalty would be £1.  

This isn’t the case for all lenders though – some will charge you a percentage of your outstanding balance, and this could be a very large sum. 

It’s vital that you check the terms of your mortgage deal before signing up. 

All deals will differ, so make sure you’re aware of your lender’s terms before using the scheme. 

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