Home / Money Articles / Could you afford to overpay your mortgage

Could you afford to overpay your mortgage

Mortgage UK
Loading 

Written by:

Your mortgage is one of the most expensive thing you will ever buy and also the longest term loan you’ll ever have to borrow. With today’s uncertain economic climate, it can be a worry getting tied to a mortgage for the foreseeable future, as most last for at least 25 years, but some up to 30 or more.While you might be able to afford the repayments now, what would happen if you were to lose your job or if the mortgage was to increase drastically over time?These are things you need to really think about. However, one solution to this problem could be to overpay your mortgage as an when you can.

What is overpaying?

When you take out a mortgage, you’ll have a monthly repayment. Overpaying is when you pay more than the agreed amount.For example, if your mortgage is £600 per month, but you were to pay £700 back instead, you would be making an overpayment of £100 per month. Over time this could actually know a significant amount of time and interest off your current mortgage.

If you’re on a variable mortgage, overpaying is easy when the interest rates drop. There will often be times when the rates drop below what you are currently paying. Instead of opting to pay the lower amount, why not stick to the original repayments you were making? That way you will knock off more of the mortgage and you won’t notice any difference to your finances.

It makes sense to repay as much as you can afford, as the long term financial benefits will far outweigh the short term loss. The more you can overpay by, the more years you will knock off the mortgage.

overpay mortgage

What to watch out for

Not all lenders will let you overpay and those that do might charge an Early Repayment Fee. The lender wants to gain as much money from you as possible, so few are willing to allow you to knock years off your mortgage. In order to recoup some of the money saved in interest charges, lenders will have an Early Repayment Fee.

It’s also worth noting that some lenders will have a set minimum amount you can repay back if you’re overpaying. If you don’t meet this minimum repayment amount your money will simply go into the lenders coffers and will stay there until the end of the year – it would be just like giving them an interest free loan.

It’s not always advisable to make early repayments, particularly if you’re on a fixed deal or a tracker mortgage, it may be worth just paying what you owe. The fees you could face will sometimes make it unwise to try to overpay the mortgage.

However, if your lender doesn’t have a fee, overpaying your mortgages is one of the best financial decisions you’ll ever make. Not only will it mean that you’re debt-free sooner, but you could save thousands of pounds in unnecessary interest charges.

Share

Comments

About Jemma Porter

About Jemma Porter

Jemma Porter is an experienced content creator who has written for a number of online publications. A self-confessed penny pincher; she's often found seeking out the best personal finance deals.

View all posts by