Reasons Why You Should Make Overpayments On Your Mortgage
We’ve only just had our mortgage accepted and already I’ve been thinking about overpayments. Realistically I know in the first 3 or so years this isn’t going to be possible as we’ll be using all of our spare money on the house or saving for our wedding *eek*. But after that making overpayments on the mortgage is one of my number one priorities. We got a 35-year mortgage and if we continue with that we’ll be mortgage-free when we’re 65/66 which is basically retirement (give or take). And I don’t like the idea of paying a mortgage right up until then.
There are loads of great reasons why you make overpayments on your mortgage and here are the main ones we’re concerned about.
Why you should make overpayments on your mortgage- There’s less interest to pay
When we got our mortgage offer through it was crazy how much of what you pay back is interest. Even at a low rate of a few percent, it’s crazy over that time how much you’ll owe.
When you make overpayments on your mortgage you are paying entirely your mortgage and not interest. This means that you’ll be able to clear off your mortgage much earlier. There are loads of mortgage overpayment calculators out there that can tell you how much you’ll save. I had a look at ours and by overpaying £100 a month across the 35 years we’d save £13,922 in interest alone which is mental. If we were able to do £200 it would be a staggering £24,431.
Making overpayments on your mortgage can reduce the number of years you’re paying
If you are making regular overpayments you can choose to eventually reduce your monthly payments. But the best thing to do is to reduce the number of years you’re paying your mortgage. This means you’ll be mortgage (and debt) free earlier in your life. For us, this would be a huge game-changer as we’d have more of a chance to save additional money for our retirement as it’s likely we’d still be working. Imagine how much better off you’d be financially if you were no longer paying for your mortgage.
When I did our calculation of an extra £100 a month it would pay off our mortgage 4 years and 5 months earlier. This is a significant period of time for seemingly quite a lot amount of money per month. If we opted for £200 it would be a massive 7 years and 10 months early which is mental. This is how much of a difference making overpayments on your mortgage can make.
You’ll have increased flexibility if you overpay
There’s so much flexibility which you’ll get by overpaying on your mortgage. Not only could you be paying less over a shorter period of time but your bank may make allowances for you. Some mortgage providers allow you to have a payment holiday should you need it. If something major happens and it means you want to take a break a bank is more likely to accept your payment holiday if they can see you’ve made overpayments before so technically you’re not behind.
Overpayments on your mortgage will give you more flexibility and freedom of choice when it comes to remortgaging after your fixed period is over. And the difference in choices you get can be massive.
When you remortgage you should get a better deal
The less money you need to borrow from the bank generally the better interest rate you’ll get. So if you manage to make overpayments on your mortgage and when you remortgage you need to borrow less money you should get a better deal.
For example, when we applied for our mortgage just adding an extra £1,500 deposit down-dropped our interest rate by almost 1% which when you’re repaying large amounts is huge. So even overpaying over your fixed term by as little as this can make a big difference to the new interest rate you may be offered.
It gives you a greater safety net to fall back on
Hopefully, you’ll never find yourself in financial trouble. However, if you do, then borrowing against your mortgage can be a good way to help yourself out of it. This can also be effectively used if you want to do something that will engender a big expenditure, for example remodeling your kitchen.
The more of your mortgage you have paid, the more flexibility you’ll have when you calculate remortgage amounts, which can in turn help you raise the funds you need.
There’s one thing to consider when making overpayments on your mortgage
Make sure you check with your lender how much you can overpay without having to pay fees. For most banks, it’s about 10% you can overpay without being charged, but it’s worth checking as some may penalise you for wanting to clear it quicker.
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19 responses to “Reasons Why You Should Make Overpayments On Your Mortgage”
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This makes total sense. I had no idea that you can save so much money just by paying £100 more a month. It’s insane! Also, reducing your mortgage by 5 years is significant, especially that when you retire you want to enjoy the spare time, not be limited because you have to still pay the mortgage.
Yeah, the earlier you can pay it off the more time you have to save for your retirement which is what we want to do x
This is great advice and those figures are astounding.
You really can’t believe it makes such a difference, especially to the interest.
As my partner says, short term pain for long term gain. Good luck with overpaying x x
Whenever we have extra money we overpay our mortgage, it’s the best use of our money right now!
Great tips, me and my husband are hoping to buy our first home in the next few years and as we currently rent (and pay quite a lot in rent) our mortgage will inevitably be less than our rent. Our hope is to put some of that aside to make overpayments and stay on top of our mortgage.
There is some good advice here. The interest charges are crazy and anything you can do to save is a must xx
It must be really exciting to have the mortgage finalised, and to just look forward now. Exciting, but at the same time daunting to be so responsible. So it is really wise to be in the know, and do things to help yourself as much as possible. All very useful helpful tips here, and they make perfect sense.
I totally agree with this, years ago I used to work for a building society and would see the benefits of doing this.
We rent so don’t have a mortgage , but can definitely see why paying over would make sense . Hopefully these tips will help us for when we do get one
Totally agree with you on this. Yes I don’t want a mortgage close to retirement! Also it’s an investment and if every in need I guess one can remortgage but while you can overpaying is always good
Yeah, we’d rather have some mortgage-free years before retiring so we can save some more for that time in our lives. It’s always about saving/ paying for something x
I’ve always made overpayments to my mortgage – if I can bring that figure down, I am going to! Great advice for those who may be considering doing so.
Have you found it’s made a positive difference to your length/ interest owed?x
These are some great reasons for why you should overpay your mortgage! Who wouldn’t want to pay less overall?
How much interest you end up paying is eye-watering, so anything we can keep and not the bank the better! x
Wow I didn’t realise how much extra it would cost if your only make the suggested payments, this is some really great advice.
I think it’s so important when you have spare money to think where it would be best used, and sometimes overpayments on the mortgage can help more in the long run x
If you can afford it, then its well worth doing, theres some good tips here. I didnt know the limit of how much you can so worth checkig that informtion out aswell.
For our one at least it’s a max 10% before they start charging fees which isn’t too bad x