The majority of mortgage lenders out there will allow their customers to make ‘over-payments’ on their mortgage. Overpaying on your mortgage will provide you with an opportunity to clear your mortgage debt quicker, saving money on interest payments.
The fact of the matter is, if you have the ability to overpay on your mortgage, you could potentially save yourself thousands of pounds. On top of that, you will clear your mortgage quicker and save money on the amount of interest that is paid overall.
Any experienced homeowner will know that overpaying, even if it’s only by a little, can make such a difference to your mortgage amount. The sooner you are able to start overpaying, the better it will be for you.
The only real downsides to overpaying your mortgage, is that if you are in your fixed or introductory period, you usually have a cap. Also, unlike an Offset Mortgage, it does not work like a savings account. This means you can’t withdraw anything you put in if you need it; your overpayments are locked in.
Whilst it is a great habit to get into, as an experienced Mortgage Broker in Sunderland, we know that a lot of homeowners cannot afford to make the extra mortgage payments. Generally the reason for this, is that life simply gets in the way of it. On one hand, we know that it’s probably in our best interest to overpay. On the other hand, look at all the other things we could be spending our money on!
Right off the bat, part of the issue is making sure that you remember to make those overpayments. We know that the likelihood of something like that crossing your mind is pretty slim, perhaps only cropping up when your mortgage is due to end. At this point, you’ve missed out on a lot of the benefit of doing this.
So with that in mind, if you can relate to those circumstances and want to get ahead of the curve, to prepare yourself to overpay, what should you do?
Well first of all, you are going to want to make sure that your lender will allow overpayments. The majority of them will, but it’s always better to be certain in advance. You will also want to clarify that there are not any penalties or associated costs.
For the most part, you will be capped for up to 10% of your mortgage, without penalties, if you’re still in your fixed, discounted or introductory period. If you are beyond that, happen to be on a tracker mortgage or have gone onto the lenders Standard Variable Rate, usually you will have no limit and no penalties when it comes to overpaying.
We would definitely recommended that if you are able to set up a standing order to overpay the lender each month, that you do so. The best practice would be to set it up so that the extra amount goes out on the same day as your monthly mortgage payment does.
For example, let’s say your payment goes out on the 1st of every month and is (if we round up for example purposes) £500 each month. Your wage has increased and you now have £75 extra disposable income per month. Set up the standing order for £75 to the mortgage lender, and have it go out on the 1st as well.
Doing so will get you into the habit of feeling like your mortgage balance is £575 per month anyway, and you’ll be able to budget the rest of your income accordingly.
If you’re not able to guarantee a set amount each month, you don’t just have to set up a standing order. Technology has advanced so much that these days, you could simply load up your banking app or online portal, and just transfer the amount in that you’d like.
Alternatively, for those who prefer to speak with a real person, you can also phone up your lender and make an overpayment with your debit card.
Of course the big advantage for those setting up a standing order, is that you are in control. If you can’t afford to overpay that month, you can log into your online banking to pause that standing order until you’re able to overpay again, at which point you can resume it and carry on.
For those who are just paying as and when, it’s as simple as just not overpaying that month.
Even if you do have to stop the payments for a time, you have at least benefited from those additional payments up until that point. You have significantly reduced the amount of interest you will have to pay overall, and that can only be a positive.
Depending on your lender, if you have been overpaying for a long time, they may allow you to make a few reduced payments or even take a payment holiday. It is crucial to ask the lender before doing this though, as it could look bad on your credit report.
Regardless of if you are a first time buyer in Sunderland or you are going through a remortgage in Sunderland, overpaying your mortgage is an amazing habit to get yourself into. Who wouldn’t want to reduce their overall debt?
You don’t need to go too far with it either. Making some casual, affordable overpayments each month could actually mean knocking a year or two off your mortgage overall, so you’ll really notice the benefits!
If you have any further questions regarding this strategy or have another mortgage query that you would like to discuss, book your free mortgage appointment today. You can select a time and date that best suits you, subject to availability, and speak to a qualified Mortgage Advisor in Sunderland. We look forward to hearing from you!