Should you overpay your mortgage? If you can put extra cash away you need to seriously consider whether you should pay more off on your mortgage which could save £1,000s, or choose to put it into a savings account with rates having improved.
Overpaying your mortgage
This can really help to boost your pocket – but you will need to ensure it is the right decision for you.
Pros:
If your mortgage rate is around the same or higher than your savings rate, you will save money by overpaying.
Putting money into savings
A higher savings rate could beat overpaying your mortgage – but not always. This depends on a few things:
· Whether you are planning a one-off overpayment, or you want to overpay regularly over the longer term
· How much your mortgage debt is
· The number of years left to repay
· Whether you pay tax on savings interest
Is it right for me?
There are several mortgage overpayment calculators out there which will tell you how much you can save and over how many years, you can also check your lenders website for this information. Below are two examples of overpayment savings:
Overpayment per month |
Mortgage term reduction |
Total interest saved by overpaying a £150K mortgage at 5% |
Interest if saved overpayment at 4.5% |
£50 |
2.5 years |
£13,020 |
£9,610 |
£100 |
4.5 years |
£23,200 |
£15,423 |
Things to check before making overpayments
If you’ve worked out that overpaying works out better for you, you must check the following before proceeding.
1) Check if you have enough funds for any emergencies that may arise
If there is an emergency such as a leak in the house, or you’re suddenly made redundant and you’ve overpaid with all the money you had, you’d have to borrow again. Therefore, it’s always a good idea to keep a sufficient emergency fund.
2) Check if you have any other more expensive “unsecured” debts”
Clear the most expensive debts first. If you do that then the interest doesn’t build up quickly which saves you money and gives you the opportunity to clear debts sooner. Don’t worry about clearing any student debt loans, or credit cards where the debt is 0%.
3) Make sure you can overpay without paying a penalty.
This depends on what type of deal you have.
- If you’re on a fix or discount mortgage deal: most lenders allow you to pay 10% of you mortgage balance per annum without paying a penalty
- If you’re on an SVR (plus some trackers): you can usually overpay as much as you want but best to check.
How do I overpay?
If you've decided it's the right decision for you, the easiest and simplest way is to contact your lender. That way you can be sure it's allowed and you won't be paying any penalties. You will have two options:
You must make sure you are clear with the lender about the option you want to go for.
Skipton Building Society launches ‘Delayed Start’ mortgage meaning first time buyers won’t be required to make repayments for the first three months.
According to a survey by Skipton, first time buyers who bought their home in the last five years found that in the first three months of living there, they were spending upwards of £30,000.
5 days ago
If you have recently moved into a property with a garden that requires a little TLC, or you’d like to get on top of your current green space, check out our tips.
8 days ago
High street lender, NatWest, have launched a new product to help first-time buyers purchase a property with assistance from a family member or friend to get them on the property ladder sooner.
‘Buy Now, Pay Later’ (BNPL) schemes, such as ‘Klarna’ are short-term loans that allow shoppers to make a purchase, but delay paying for it for an agreed amount of time.
Klarna is one of the most popular BNPL services with 18 million customers in the UK alone, and offers interest-free payment options which is appealing to shoppers. However, does it affect a mortgage application?
14 days ago
We look at how to get the best Buy to Let mortgage rate, what's in store going forward, and options as a landlord with increasing costs.
23 days ago
Throughout this past week, lenders have continued to reduce their mortgage rates giving borrowers in the UK some welcome news following the change in global tariffs under US President, Donald Trump.
23 days ago
Did you know that buying a house, or relocating is in the top 10 most stressful life events?
Stress of course is an unavoidable part of life and there are many reasons why people experience stress, not just buying a house!
There are lots of effective ways to manage and reduce stress, check out our tips to help you.
With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.