The positive impact of overpaying on your mortgage

Did you know that many mortgage lenders offer the option to make partial overpayments without incurring penalties up to a certain amount?

Whilst most mortgages permit you to overpay on your minimum monthly requirement, it very much depends on your individual financial situation. Here are some points to consider before deciding if making overpayments is right for you:

• Are you in a position to make overpayments comfortably?
• What is the maximum overpayment limit set by your lender?
• Might you need that discretionary income for other purposes?
• Should you contribute more to reduce the mortgage term or make regular overpayments?

Given recent market conditions, you may be wondering if making mortgage overpayments is a prudent move. That said, there are some significant advantages in doing so:

Reduced overall interest payments: This stands as one of the most substantial benefits of mortgage overpayments. By diminishing your total debt, you will pay off your mortgage more quickly and incur less interest compared to sticking with minimum monthly payments.

Own your home faster: If you’re in a position to consistently make overpayments, you’ll reach full homeownership sooner rather than later. Clearing your mortgage, a substantial financial commitment, will eliminate one of your biggest financial outlays.

Property is a sound investment: Given that property values typically increase in value, allocating funds towards your home to build equity is often a wise investment. This holds true when interest rates on savings accounts and ISAs are relatively low.

How to start making mortgage overpayments:
Speak to a mortgage broker. This step is strongly recommended, as they can offer expert advice on whether mortgage overpayments are your best course of action. They can help you calculate potential savings, propose viable alternatives, and guide you in selecting the best method for overpaying.

Speak to your lender:
If you decide that overpayments are the right choice for you, you’ll need to speak with your lender to confirm how much they will allow you to overpay and agree the amount of overpayment you can make. Your mortgage broker will provide guidance throughout this process to ensure you secure a deal that is in your best interest.

How much can you overpay by?
This depends on the type of mortgage you hold and whether you are under an introductory rate. Most lenders impose a cap on the amount you can overpay during an introductory rate period without incurring penalties, with the typical limit set at 10%. [1]

Overpaying on an interest-only mortgage:
While some lenders permit monthly overpayments on an interest-only mortgage, it’s important to note that the impact is not equivalent to that on a capital and repayment arrangement. However, some mortgage lenders may allow you to make a lump-sum payment towards the capital balance of your interest-only mortgage during the term but keep an eye out for possible early repayment charges (ERC). [2]

Get no obligation advice today!
If you’d like to find out more about making overpayments on your mortgage, our friendly team at Downton Mortgages and Financial Services is available to provide you with the advice and calculations you need to make an informed decision.

Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.

The information contained within was correct at the time of publication but is subject to change.
Your home may be repossessed if you do not keep up repayments on your mortgage.

Sources:
[1] http://www.barclays.com
[2]www.halifax.co.uk