OVERPAYING YOUR MORTGAGE

If you have a few savings available, then using them to overpay your mortgage could reduce the amount of interest you pay and help you pay off what you owe much earlier.

A by Leeds Building Society, 24% of people who received cashback as an incentive for their mortgage deal said they’d put the money straight into overpaying their new mortgage.

PAYING YOUR MORTGAGE OFF EARLY IS AN APPEALING PROSPECT FOR MOST.

Effect of overpayments Even though only a few of us will ever be lucky enough to have a big lump sum cash that would allow us to clear our mortgage in full, overpaying by even the slightest amount each month can have an impact.

Let’s give you an example, a borrower with a £150,000 repayment mortgage on a 25 year term, at an interest rate of 2.25%, who makes monthly overpayments of £50 would take off two years and four months off their mortgage term and pay £4,608 in interest. If they were to overpay by £100 a month, they could reduce their mortgage term by four years and three months and pay £8,370 in interest.

Let’s give you an example, a borrower with a £150,000 repayment mortgage on a 25 year term, at an interest rate of 2.25%, who makes monthly overpayments of £50 would take off two years and four months off their mortgage term and pay £4,608 in interest. If they were to overpay by £100 a month, they could reduce their mortgage term by four years and three months and pay £8,370 in interest.

Overpaying can be a really good move when interest rates are very low, as the interest charged on your mortgage is likely to be more than the interest you could gain from your savings.

CONSIDER THE DOWNSIDES

While overpaying your mortgage can have huge financial benefit, it’s important not to forget that some mortgage products offer more flexibility than others, so being able to access to that money can be difficult.

It’s would be wise to make sure you have a rainy day fund in place before you consider making mortgage overpayments, to ensure you won’t be short of savings in the event of an emergency.

It’s best to check with your lender how much you can overpay. Some mortgages will carry an Early Repayment Charge during the deal period. However, the majority will allow some overpayments without a charge, typically up to 10% of the mortgage balance each year although it can vary by product and lender.

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