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Why Would You Overpay On Your Mortgage?

A typical mortgage term in the UK lasts for around 25 years, but if you have disposable income, there is no reason why you can’t overpay on your mortgage and make a big saving.

Your mortgage payments are made up of capital (the property) and the interest rate, which is determined by the lender and the Bank of England base rate. The initial years of the mortgage involve paying off more capital first and less interest and then this reverses towards the end of the mortgage term.

This gives you the opportunity to pay off more capital if you want to. So if you overpay on your mortgage, you will increase the stake in your home more quickly and this will mean that you don’t need the mortgage open as long and therefore you will pay less interest.

Using the example from Money Advice Service:

If you have a mortgage of £150,000 for 25 years and pay 5% interest, it will cost £877 per month.

But by overpaying an extra £150 a month, you would reduce your mortgage term by 6 years and save £31,000.

How Our Overpayment Mortgage Calculator Works

By using our overpayment mortgage calculator above, you can enter some basic details including:

  • Loan size
  • Current interest rate
  • Current term
  • Monthly overpayment

You will then receive an instant result displaying how much you can save and how much you can reduce your mortgage term by. The calculations are based on real mortgage deals that have been analysed by our partners. You can continue by providing some more details regarding your mortgage and contact details too so a regulated advisor can get in touch and discuss your options.

Our service is completely free and we are proud to be working with leading mortgage advisors in the UK to help you save money on your mortgage.

The Reasons to Overpay Your Mortgage

It is common to receive extra income whether it is from an inheritance, a bonus or increase in salary from work.

You will want to use this money wisely. The next best alternative is to put the money into a savings account, however with such low rates currently available in the UK, it is not very appealing.

So if you have a long mortgage term, it makes sense to overpay and it is also tax free to do so, unlike an ISA which charges tax on anything you make. (Source: This is Money)

When Is The Best Time To Overpay?

It is best to make extra payments on your mortgage is if you are in a good financial position to do so. It is recommended to pay off any other credit cards and loans before looking to pay off a mortgage because the interest rates of those products are likely to be much higher. So you will be financially better off if you clear the debts of short-term products first.

In addition, you want to make sure that you are not too overzealous to pay all of your disposable cash. It is also necessary to have an emergency fund for a rainy day too for things like a funeral, broken boiler or car repairs. This is because once you make an overpayment on your mortgage, you will not be able to access the funds again, unless you have a flexible or offset mortgage.

Also, you should make sure that you are putting your extra money towards a pension as this will put you in good stead for when you retire.

Read The Terms & Conditions Of Your Mortgage Agreement

Mortgage providers will have different terms when it comes to overpaying mortgages. Some will have a minimum amount that you can repay and others will have a maximum amount you can pay.

Depending on the lender, there may be an early repayment fee of around 2% for any overpayments. However, the majority of mortgage companies allow you to overpay by up to 10% without any penalties. So if you are looking to overpay a large sum of your mortgage debt, it is important to check with the mortgage vendor beforehand before rushing into it.

Reading the small print is very important as some lenders want to keep you locked in for as long as possible as it means that you will be paying more interest. So with this in mind, it is also worth checking with your lender that they will not reduce your normal payments so that you won’t be able to overpay. Also, make sure that your lender is not reducing or changing your mortgage term because this could force you into making higher payments.

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