Can I overpay on my Mortgage?
Yes, In most cases you can overpay on your mortgage but this will be based on the terms of your mortgage. Mortgage overpayment simply means paying more than your lender sets as your monthly repayment. You can pay this in a lump sum or by simply paying more every month.
The benefits of overpaying your mortgage:
- You save more on mortgage interest payments than you may earn on interest by leaving the money in your account
- You don’t pay interest on the amount you overpay
- You will owe less on your mortgage and own more equity in your property quicker.
- You will shorten your mortgage term
Overpayment on your mortgage isn’t always the best idea though.
Some lenders will restrict you to 10% overpayments per year and fine you for any extra overpayment.
The fees for overpaying your mortgage can be between 1-5% of the amount overpaid.
Mortgage overpayments might also cost more than remortgaging as you might end up overpaying on a higher rate than you would if you had remortgaged first and gotten a cheaper rate.
When you should overpay your mortgage
Overpayments should be made in line with when your lender charges you interest (the most interest). This might be daily, monthly or quarterly. You can time your payments to be made a day or 2 in advance of when the interest rates are charged.
And when should you not overpay your mortgage
- Your lender might not allow overpayments and fine you.
- If interest rates are higher than your mortgage rate interest charges then your money may be better served in an appropriate savings account.
- If you have other debts with higher interests rates then you are better of clearing these debts first. Mortgages with flexible features such as offset, current account mortgages or those with a borrow-back facility will allow you to overpay and then borrow the money back without any penalty.
Overpaying should really only be done when you have spare disposable income in case of unexpected emergency costs.
The aim of overpaying your mortgage
Mortgage repayments are calculated using the amount you owe, the term of the mortgage and the interest rate the mortgage is charged at.
Mortgage overpayments simply means paying more than your lender stipulates as the monthly payment.
The aim of overpaying your mortgage is to reduce the amount of interest rate payments you have to make towards the mortgage.
Mortgage overpayments can be done in one large sum or in regular overpayments. To see how much you can save please use a mortgage overpayment calculator.
Steps to overpaying on your mortgage:
Call your lender and inquire about overpayments. Ensure you understand your limits and any fees involved.
Your mortgage lender will give you the option to reduce your term or your monthly payments.
Always choose to reduce your term if not your mortgage overpayment might be less effective.
Be clear to your mortgage lender that all your mortgage overpayments should go towards reducing the term of your mortgage.
You can then set up a standing order to your mortgage account to overpay your mortgage each month.
Always seek professional advice from a mortgage broker before overpaying.
Mortgage management platforms such as ours, will automatically suggest ways in which you can save the most money on your mortgage and notify you.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.