Overpaying your mortgage

Overpaying your mortgage

Would you start overpaying your mortgage?

Overpaying MortgageIf you won the lottery, you would pay off your mortgage before buying yourself a brand-new car, wouldn’t you? Unfortunately, most of us will never experience such fortune, however, you may receive smaller lump sums of cash over your lifetime so how would you go about overpaying your mortgage?

Many people opt for ‘cashback’ deals on their mortgage and use this money to overpay their mortgage immediately. Some people also used this money for home improvements, in order to increase the value of the house. There are a few factors to consider before overpaying though.

There are slightly different approaches you can take to overpaying your mortgage, one of which is where you pay off a large lump sum of the mortgage to reduce the debt. Another way is by making monthly overpayments on top of what your set monthly payment is by the lender. The latter method is the more common one and self-employed people sometimes use this to make up for underpayments on other months where they have less cash coming in. These frequent overpayments may in turn, reduce the term of your mortgage. However, there are pros and cons of overpaying your mortgage:


Reducing the term of your mortgage.
Giving you the facility to underpay in the future if money is tight.
Interest rates are currently low so overpaying whilst you may have the capacity to, may save you money if rates increase in the future.


You cannot retrieve any overpayment once it has been made.
If you pay more than the 10% that many lenders allow annually, you may incur “Early Repayment Charges” which means that you are essentially paying the lender for the privilege of overpaying your mortgage. Check the T’s and C’s of your mortgage or contact your lender if you are unsure what you can repay without receiving a penalty.
Some mortgages don’t come with “Early Repayment Charges” but you are likely to end up paying for this luxury in the form of a slightly higher interest rate.

If you are not sure how to make an overpayment, speak to your lender to find out how to add extra money to your payments. Alternatively, if you are about to remortgage your property, speak to your broker about paying off a lump sum or increasing your monthly payments. It is important that before overpaying, you do some research and make sure you leave yourself with enough money to survive on.