Is it a good idea to overpay my mortgage?

Many homeowners are facing a decision of whether they should pay off portions of their mortgage to reduce their monthly repayments, overpay to reduce the mortgage term, or save their money to take advantage of the attractive interest rates.

Overpaying my mortgage

If you’re coming off a fixed-rate deal, you could be facing an increase in your monthly mortgage payments due to the rise in interest rates. Making a lump sum payment before starting a new deal could lower your repayments and, by reducing the term, you would save interest over the lifetime of the mortgage, too.

Better rates may also be secured on a new fixed-rate deal if the property’s loan-to-value (LTV) is less.

“The higher the rate, the bigger the savings with an overpayment.” ²

Adam French of NerdWallet

How do I overpay my mortgage?

Overpayments can be made during the duration of the deal but doing this could carry penalties. Many deals have the option to overpay on their fixed rate of 10% of the balance per year, but this depends on the lender and is worthwhile checking before making any decision.

Overpayments can also be made at the end of a deal, with no restrictions, allowing any amount to be paid off before signing up to another fixed-rate deal

Putting money into savings

Another option is to save your money, which could be an attractive option given the potential higher rate of return on savings accounts currently. However, it is useful to bear in mind the tax on the interest, especially if you are a higher-rate tax earner, as this will reduce the amount you make in interest overall.

You might also want to consider the risks associated with trying to generate interest from higher-return investments as the risks may outweigh the overpayment option. It is therefore advisable to speak to an independent financial advisor before proceeding.

Before you decide

It is advisable to keep some money in savings in case of any emergency, giving you peace of mind in case anything unexpected happens in the future. It is also worthwhile clearing credit cards or loans first, avoiding any high interest charges on any expensive debts that have been accrued. 

If, after everything, you still can’t make your mind up…

“If your mortgage rate is close to, or higher than, a savings rate, then it is a good idea to overpay.” ²

Martin Lewis, MoneySavingExpert

How Mallory Financial can help

Unsure about over payments on your mortgage or other factors that could make your mortgage more affordable?  Our experienced mortgage advisors are here to help.  Call us for a FREE initial consultation to help you consider your personal circumstances and offer practical mortgage advice relevant to your situation.

We are here for you, whenever you are ready.

Call us on 01565 874 246 or book an appointment below.

Your home/property may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but will be agreed with you before proceeding.

 

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