Overpaying your mortgage, with small regular payments could save you thousands of pounds over the term of your mortgage.
Committing more of your monthly salary towards your mortgage may seem daunting. But it could save you thousands of pounds in interest in the long run. Not only could it save you money, but could also lead to you being mortgage-free sooner. Overpaying your mortgage could knock years off your overall mortgage term.
I’m on a fixed-rate mortgage deal – can I still make overpayments?
Yes. The benefit of being on a fixed-rate mortgage means that your payments are fixed each month. This will allow you to know exactly how much money you can afford to overpay on a regular basis.
However it’s not just those on a fixed rate deal who could benefit from overpaying. Savings for borrowers on their lender’s Standard Variable Rate (SVR) could be even more generous. This is because the interest you are currently paying is likely to be higher than that of a fixed-rate deal.
Whilst overpaying your mortgage could save you money in the long-term, a more effective way to save money could be to remortgage to a new deal.
Borrowers on an SVR are likely to be paying more interest, leading to expensive monthly payments. With fixed-rate deals at an all time low, switching to a new mortgage could reduce your monthly outgoings. The money saved could be used to overpay your mortgage, reducing your term and avoiding unnecessary interest payments.
What you should consider before overpaying your mortgage
Before you make any overpayments on your mortgage, you should check with your lender first. Most lenders do allow overpayments, but have an upper limit on how much you can overpay by. In the majority of cases, this is 10% of your outstanding balance but it can vary between lenders.
Not everyone will be in a position to make overpayments. Whilst the long-term benefits are a definite incentive, overpaying your mortgage may not be an ideal option if you are struggling financially.
If you are keen to overpay your mortgage, but are wary of your money being locked into your property, one option could be to put your overpayments into a separate savings account. This could then be used to make a lump sum overpayment at the end of the year or whenever is convenient.
Using a savings account to make overpayments will give you greater flexibility over your money. Cash will still be accessible in case of any emergencies that arise. Any amount remaining could be used towards your mortgage, which could still make a considerable difference over the term of your loan.
Remortgage deals are currently highly competitive, with interest rates at an all time low. Switching to a new deal could reduce the amount of interest you pay – saving you money in the short-term whilst giving you the potential to overpay your mortgage.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE