Overpaying your mortgage: should you do it?
Hardly a day goes by without the cost of living hitting the headlines. For many homeowners the increasing costs of owning and running a home is having a huge impact on household budgets. Even if you are near the top end of your monthly budget, or are expecting a ‘payment shock’ when you come to remortgage next, you may be wondering whether it’s worthwhile paying more than the minimum repayment each month, with the aim to save money in the long run.
So, what are the benefits of making mortgage overpayments?
- Mortgage-free sooner
Overpayments can either be a one-off lump sum or a regular overpayment made throughout the year. Overpaying on your mortgage means you can potentially clear your mortgage balance quicker. - Reduce the amount of interest you pay
It could also make sense to overpay on your mortgage rather than keep your money in a savings account, because you may earn more in interest savings on your mortgage than you could earn in a typical savings account. - Access to better rates in the future
Lenders will offer you better rates if you have a lower loan to value. The more you can pay to reduce your mortgage, the potentially lower interest rates you’ll have when you come to remortgage to a new deal.
Are there any downsides to overpaying your mortgage?
Overpaying on your mortgage might not be right for everyone. Using savings to overpay on your mortgage could leave you with less cash to fall back on in an emergency.
Not all lenders have the same rules for overpaying and there may be a penalty fee called an Early Repayment Charge (EPC) if you overpay too much.
You should only make overpayments if you’re sure you can afford them. It’s a good idea to make overpayments if you already have an emergency fund, and you don’t have any other, more pressing debts that need to be repaid.
It’s always a good idea to discuss your options with an adviser, we can help guide you through all your mortgage options including advice on making overpayments.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Approved by The Openwork Partnership on 07/02/2024