One thing you need make sure you do first is to check with your lender if there are any early repayment charges on your mortgage if you overpay, as any additional fees may wipe out the benefit of the extra mortgage overpayments.
Simply input some basic information about your mortgage as well as some details about the type of mortgage overpayment you are intending to make and our mortgage overpayment calculator will do the rest.
Published 11 December 2018
Mortgage overpayments are, as the name suggests, payments which are over and above your usual monthly mortgage payments.
So, for example, if your mortgage costs are £1,000 a month, you may decide to overpay by £100 a month, bringing your total mortgage outgoings to £1,100 a month. Alternatively, you might decide to make a one-off lump sum overpayment of say £5,000, or perhaps you may choose to make both lump sum and regular overpayments.
The main benefit of making mortgage overpayments is that you’ll reduce the amount of interest you’ll pay back overall. That’s because every time you overpay, you’re effectively paying back what you owe sooner, so there’s less interest payable.
Bear in mind, however, that depending on which kind of mortgage deal you have, there may be restrictions on the amount you can overpay your mortgage by. Some only allow you to make overpayments of up to 10% of your mortgage value each year, so you’ll need to check with your lender before you change your monthly payment. If you exceed the amount you’re allowed to overpay by, you could end up having to pay early repayment charges.
Overpaying your mortgage means you will be able to repay what you owe faster, so that you can be mortgage-free sooner. It means you’ll pay less interest too, saving you money in the long run.
Channelling spare cash into your mortgage can also reduce the negative impact of low savings rates. For example, if your mortgage rate is higher than the amount of interest you can earn on your savings, overpaying your mortgage makes good financial sense. If you can earn a higher rate on your savings than you pay on your mortgage, the reverse is true.
However, overpaying won’t be right for everyone, as once you’ve put money into your mortgage, it’s hard to get it back again. You should therefore only consider overpayments if you know you’re not going to need access to that money, and if you’ve got other savings set aside as an emergency or rainy-day fund.
Overpayments will also only be right for you if you’ve paid off more expensive debts first, such as credit cards and personal loans. You may be charged higher rates of interest on these than on your mortgage, so paying these off should be a priority.
Overpaying your mortgage won’t instantly reduce your mortgage term, so if your goal is to pay off your mortgage as quickly as possible, you may decide to consider shortening your term instead.
However, overpaying has the same effect as shortening your term, but can provide you with greater flexibility to stop and start the additional payments whenever you want. If you shorten your term rather than making overpayments, you’ll be committed to steeper monthly mortgage costs for the remainder of your mortgage term.
If you do decide to reduce your mortgage term, you’ll need to contact your mortgage lender and ask if this is going to be possible. You may have to wait until your current deal finishes and shorten your term when you remortgage.
Most mortgage deals impose early repayment charges if you pay back what you owe before the end of the agreed term.
However, lenders usually offer an overpayment facility, so you can pay back a bit extra on top of your normal payments if you want to. If you’ve decided to make overpayments, you must check with your lender how much you are allowed to overpay without incurring early repayment charges.
As a general rule, you’ll usually be able to overpay up to a set percentage of your mortgage each year, typically 10%. If you go above this limit, early repayment charges, which often run into thousands of pounds, may significantly outweigh the benefit of making overpayments.
However, if you’re on your lender’s standard variable rate, you’ll generally be able to overpay by as much as you want each month. Again, check with your lender, or seek professional advice on which mortgages allow you to make overpayments without penalty.
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