Overpaying on a mortgage can be a great way to save money in the long run, but it isn’t right for everyone. When you take out a loan, your lender will assign you a minimum payment amount each month. This is what you need to pay at minimum in order to cover the terms of the loan agreement, but you can pay more if you want to. That's why it's important to check with your lender.
Before making a mortgage overpayment, it’s important to understand the potential consequences. The rules around overpayments vary between lenders and different loan products; some may allow up to 10% of the balance per year as an overpayment, while others may not have any limits at all. You may be charged a penalty fee if you pay over the lender's allowed limit.
You should also take your current financial situation into account. If you’re paying a standard variable rate, which is usually more expensive than other loan products, you may be better off switching to a more competitive deal. On the other hand, if you can afford it and are comfortable with it, making regular or one-off overpayments can help to reduce the amount of interest that you have to pay overall.
If you decide to overpay on your mortgage make sure you are aware of any penalty fees that may come with this, such as an early repayment charge. If you are able to make mortgage overpayments this will help pay your mortgage sooner as your outstanding mortgage balance will decrease quicker, meaning it may also shorten the term of the mortgage.
To make an overpayment, simply tell your lender that you’d like to reduce your mortgage term by making extra payments. Depending on your lender, you may be able to do this online or via a standing order. Keep in mind that if your financial situation changes, it may be challenging to keep up with the repayments if you’ve agreed to a minimum payment plan.
The lender's standard variable rate can be expensive, you can usually overpay as much as you want, however, the SVR can cost you a lot more than remortgaging. If you are on an interest rate that is fairly high then remortgaging could be a better option for you as you could have access to a cheaper deal or a deal over a shorter term to pay more per month off the mortgage.
Some ways to overpay on your mortgage are:
If you are looking to make a regular overpayment on your mortgage this comes with potential benefits such as:
Overpaying on your mortgage or remortgaging during your fixed deal may have some drawbacks such as:
As long as you understand the rules and consequences of making an overpayment, it can be a great way to reduce your mortgage term and save money in the long run. However, if you’re unsure, it’s always best to speak with your lender for advice.
If you are looking to remortgage or have any questions regarding overpayments on your mortgage, call us today at 0151 662 0188 or email [email protected]
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