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The ins and outs of overpayments

Overpaying your mortgage

Once you’re settled into paying your mortgage and got used to your new outgoings, you may find that you have a bit more disposable cash than you first thought. So should you save it, or spend it? However, overpaying your mortgage can help pay off your mortgage debt faster, and save you money in the long run.

We’ve looked at the different options for overpaying your mortgage which can help you save money, particularly if you’re looking to remortgage or buy a second home later in life.

What are the benefits of overpaying?

There are two main incentives to overpaying on your mortgage:

  • Pay less interest and more capital off
  • Lower the length of your mortgage
  • Could save you money over time

By paying as little as £100 extra a month, you could significantly reduce the term of your mortgage. For example, if you have a £100,000 mortgage over 25 years with an interest rate of 4%, and you pay off an extra £100 a month, you could reduce your mortgage term by 6 years and save £15,534 on interest.

Just be aware that some lenders may charge an early repayment fee, so it’s worth sitting down with your mortgage adviser to see if the overpayment charge outweighs the other benefits of making overpayments.

Should I overpay or reduce my term?

Whether you choose to overpay your mortgage or reduce your mortgage term, you’ll probably be seeking the same outcome: to pay more money off your mortgage each month, meaning in the long term, your interest rate stays low and you pay off your mortgage sooner.

However, if it’s an option, going with overpayment is often a better choice. Because of the flexible nature of making overpayments, overpaying affords you flexibility if your financial situation changes. Reducing your term formally changes your mortgage, meaning you are fixed into a contract with higher monthly repayments over a shorter period of time.

Making overpayments

If you’re considering making an overpayment on your mortgage, the best thing to do is speak directly with your lender.

You can make changes to your overpayments at any time, whether this is to reduce or increase them. For instance, if you get engaged and suddenly need that extra cash to save for a wedding, you can reduce your overpayments or revert to your original mortgage payment. Similarly, if you get a promotion at work, you might decide to invest some more money in your mortgage, so you can simply call your lender and increase your payments to an amount you feel comfortable with.
Looking for further help or guidance when it comes to managing your mortgage payments? Please don’t hesitate to contact us here at Mortgage Advice Bureau - our friendly experts will be more than happy to chat through your options.,

Because we play by the book we want to tell you that…

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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