Overpay your mortgage and save thousands

Paying more to your mortgage lender can mean great savings, but you will lose access to your money.

Why overpay?

Overpaying sounds strange but it actually makes sound financial sense. By paying your lender more than necessary you reduce your overall mortgage debt more quickly, and because you are charged interest on that debt, the interest you owe also reduces.

Over the long term this can have a dramatic effect on your finances, potentially saving you thousands of pounds and cutting the term of your mortgage by years.

It can also help you build up an equity buffer in your home, which could prove invaluable should you want to remortgage in the future. Lenders offer their best deals to those with the greatest equity, so overpaying can give you future access to cheaper mortgage rates.

Easier than ever?

Current low interest rates mean that more borrowers than ever are able to overpay, without feeling the financial pinch.

This gives borrowers greater potential to overpay their mortgage because, for some, the interest rate and monthly repayments have plunged in recent years. Rates have fallen, so by simply maintaining their previous payment many borrowers are quite easily able to overpay.

Who overpays?

Those with more equity in their homes are likely to overpay, as are those who have borrowed to modest income multiples. In other words the less stretched you are, the more likely you are to be willing and able to pay more to your lender, which makes sense.

Is it a good idea?

Overpaying is an excellent idea for many borrowers. It helps you to build equity in your home, which means that better deals will become available to you when you remortgage. And it saves you money, because by owing your lender less money, you are charged less interest. The cumulative savings are not to be sniffed at.

However, there is one big issue with overpaying. It can mean you lose access to that money, which isn’t very helpful if you need it in the future.

Putting your extra money into an easy access savings account may not be too appealing with interest rates currently so low, but at least your cash is there should you ever need it. Whether you lose your job, your cars packs in or you are faced with an unexpected expense, having money you can get your hands on quickly is invaluable.

Of course some mortgage lenders will allow you take back your overpayments. But it’s essential that you double check your future access to money you overpay – even with a fully flexible mortgage, especially if you don’t have sufficient funds in a separate savings account.

Money you overpay could be gone, or at least tied up in your property, until you come to sell. It might be working hard for you in your mortgage account, but that won’t be much good if you need it now. Only overpay what you can afford to be without.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker before acting on anything contained in this article.

Warning: Your home or property may be repossessed if you do not keep up repayments on your mortgage or any loan secured on it.

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