Overpaying on your mortgage is often a no-brainer. It is a way of saving lots of money in interest however, doing this really depends on your personal circumstances.
Overpaying on your mortgage means that you will be paying off the debt built up from buying your property. You therefore don’t pay any interest on the amount you overpay. The money that you save on interest is often more than the returns you would possibly get if you placed this money in savings.
Before you consider overpaying on your mortgage, you must check you can do this without receiving a penalty. Most lenders allow you to overpay 10% of your mortgage balance per year if you are still in your introductory fixed or discount period. However if they don’t then you could risk losing a lot of money paying fees.
If you are beyond your introductory fixed period, you will be paying your lender’s standard variable rate (SVR) and you can usually overpay by as much as you want. We would always advise looking into whether it would be worth to remortgage or product transfer in these circumstances.
Fees for paying too much are usually between 1% and 5% of the amount overpaid depending on your mortgage.
Another consideration to make before overpaying on your mortgage is whether you have any other expensive debts. We would always advise to clear any expensive debts first as the interest can build up quickly on these. For example, clear any credit card or loan debt before overpaying on your mortgage however, if you have student loans or credit card debt at 0% we would advise the opposite.
As with any commitment to paying off debt, make sure you have an emergency cash fund. We would advise that this would be in the region of three to six months worth of cash, enough to live on if you lost your job. This should be in placed in a top savings account so that you receive the best rates possible. If you need advice on savings accounts then we can help.
Overpaying on your mortgage vs savings?
Overpaying can save you £10,000s over the lifetime of a mortgage. Overpayments don’t need to be that much – £50 or £100 a month can make a real difference and reduce the interest you pay and even shorten your mortgage term.
If you decide to overpay on your mortgage then please give us a call and chat this through with us. This is exactly what we do as mortgage advisers. We can speak with your lender and make sure this is possible and also whether it is worth it in your circumstances.
*Please note: Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.