For some people, meeting their monthly mortgage payments is a struggle, and their main focus each month is ensuring they meet these requirements. However, if you are in a position to make overpayments on your mortgage, you are in line to enjoy significant benefits in the long term.
How overpayments on your mortgage works
Chris O’Brien, the product development manager at NatWest, has spoken about overpaying a mortgage; “If you want to overpay on your mortgage, you can either do so with a lump sum – for example money you have received as an inheritance or a redundancy payment – or by making regular additional payments every month.”
It is important to know you don’t need to commit to regular overpayments, if you can, you should feel free to do so, but it is okay to overpay whenever you want.
However, you must be aware of any annual limits on your account, which will limit the amount you can overspend without being penalised. Please check with your mortgage lender if this applies to you. Many fixed-rate mortgages only allow for 10% of the total outstanding mortgage balance to be paid each year.
Why should I overpay my mortgage?
The key benefits of overpaying on your mortgage are by overpaying at certain times, you can:
- Reduce the length of time your mortgage is scheduled to run for, if you maintain the same level of normal monthly payments
- You will save money by paying less in interest repayments over the course of your mortgage
For most people, saving time and money are benefits of any action, but when it comes to your mortgage, this is invaluable.
Your mortgage is the largest expenditure or at least the most important outlay, you have each month. With mortgages lasting for decades, reducing their length by any amount of time is positive news for homeowners.
Examples of overpaying a mortgage
With a mortgage of £150,000 which had 20 years to run and the current level of interest rate standing at 4% a year, the monthly repayments would be £909.
However, if the mortgage holder was able to pay an additional £50 each month, the length of the mortgage would be reduced by 18 months. This would lead to a saving of £5,807 in the amount of interest which has to be paid.
If the mortgage holder was able to an extra £100 a month, this would reduce the mortgage term by close to three years. The interest saving would be £10,677.
Another example would come when the mortgage holder had the ability to pay £10,000 towards their mortgage in a lump sum. In doing so, this would reduce the mortgage length by two years, and the mortgage holder would save more than £11,000 in interest payments.
How to explore your mortgage options with The Money Hub
You know about the benefits of overpaying on your mortgage, but if you don’t devote the time or energy to finding the best deal in the first place, you might miss on great value. Thankfully, help is at hand.
Call the Money Hub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.