Repaying your mortgage early, always read the small print!

One quarter of all borrowers are taking the opportunity to pay down their mortgage while interest rates are low, according to a survey. But homeowners are being warned to check the small print of their loans.

If mortgage interest is recalculated only once a year then borrowers will not get the full benefit immediately of any monthly overpayments.

They should also remember that they will not usually be able to get the cash back from an overpayment if they need it in an emergency.

Most lenders allow overpayments of up to ten per cent of capital each year without penalty, but policies vary. Stroud and Swindon Building Society, for example, permits overpayments of up to 25 per cent per year of the outstanding mortgage balance, while Nationwide accepts up to an extra £500 a month penalty free.

HSBC accepts up to a 20 per cent overpayment on a borrower's monthly payment.

Lloyds TSB has doubled the level of mortgage overpayments it allows each year from ten per cent to 20 per cent of the outstanding mortgage balance.

This applies on all variable-rate deals with any of its loan brands --Cheltenham & Gloucester, Halifax and BM Solutions. Borrowers with fixed-rate deals can overpay only up to ten per cent.

On a 25-year repayment mortgage of £100,000 at 3.5 per cent interest, overpaying by just £50 a month would reduce the mortgage term by three years and six months and save more than £14,000.

Most banks and building societies calculate mortgage interest daily. It means any overpayment will immediately go towards reducing your debt - and subsequently the amount of interest you pay.

However, some lenders still recalculate interest annually, including a number of building societies such as Leeds and National Counties. It is a good idea to speak to your mortgage provider before making an overpayment.

National Counties says it can recalculate interest immediately after a capital repayment has been made, but borrowers need to request it.

Borrowers will not usually be able to get back any money they use to reduce their mortgage debt unless they have a flexible or offset mortgage. For this reason it is important not to use money you might need later or leave yourself with no savings.

With some mortgage rates now at record lows it may be the case that some borrowers would earn a better return on their cash in a high interest savings account than on the potential mortgage interest savings from overpaying - so do your sums.

Those who want to retain access to their savings but still want to use them to reduce their overall borrowing should consider-deals where savings are offset against the mortgage debt, so you pay interest only on the overall balance.

Expect to pay a slightly higher interest rate for this flexibility. But borrowers retain control over their money and can access savings at any time. Among the major providers of offset mortgages are First Direct, Yorkshire Building Society and Woolwich.

First Direct has a two-year fixed-rate offset at 3.29 per cent for those with at least a 25 per cent deposit. Yorkshire Building Society has a five-year fix at 4.79 per cent.