Should I overpay my mortgage?
Some Helpful Advice from your friendly Mortgage Broker in Leicester
Should I overpay my mortgage? – Most lenders will allow you to make ‘overpayments’ on your mortgage. Overpaying on your mortgage will allow you to clear your mortgage debt quicker, saving money on interest payments.
Recent research undertaken by ‘comparethemarket.com’ states that 58% of UK mortgage holders don’t make additional payments on their mortgage. This makes very interesting reading because almost all mortgage applicants start their mortgage journey intending to do so (or at least that’s what they tell me!).
All Homeowners know that overpaying, even by relatively small amounts, can make a big difference to the number of interests paid back over the term. The sooner you begin overpaying, the better, as the extra payments have a greater period of time to have a greater effect.
The survey by Compare the Market suggests that Homeowners cannot afford to make extra payments, but I feel the main reason is that life simply gets in the way we know overpaying is the “right” thing to do but let’s face it, there’s always something else you can be spending your money on, and plenty of those things are more exciting!
Put the Plan into Action
Part of the dilemma here is remembering to make those extra payments. It’s unlikely to cross your mind too often, except perhaps when your mortgage only has a few years left to run.
So, if you can see something of yourself in the above and would like to be making those extra payments so that, perhaps you can retire a year or two early, then what should you do?
It’s highly recommended setting up a standing order payable to your lender each month. Set up the standing order to go out on the same day as your regular mortgage payment. E.g. your mortgage payment is, say £500pm and is collected on the 1st of the month. You can afford to pay an extra £75pm, so set up a standing order for £75pm to go out of your bank also on the 1st.
The reason for the above is that very quickly you will start to “feel” that your mortgage is £575pm and you will get used to that within a matter of months.
According to Which? research almost half (46%) of UK homeowners have made overpayments against their mortgages in the past year. It also shows that: “Younger homeowners were most likely to have overpaid their mortgage, with seven in 10 (69% of) 18-24 year olds having made at least one overpayment.”
You’re Still in Control
The big advantage of setting up a standing order to a direct debit, is you (the payer) are completely in control, unlike a direct debit where this is the receiver. Therefore, if you find yourself a little tight with money one month. You can easily log in to your online banking and pause the standing order so that it would cancel any future payments from going out until reactivated.
Up until the point of stopping the payments, at least you have benefited from the additional payments made until that point, and as mentioned above, this does not stop you reactivating your standing order in the future when you are more financially comfortable.
Some mortgages will even let you make reduced payments or take a payment holiday if you have been overpaying for a while. Before choosing a payment break though it’s essential to check with your lender that you are eligible to do so to avoid a bad mark on your credit report.
Whether a First-Time Buyer or going for a Remortgage, overpaying your mortgage is a great habit to get into. You don’t need to go hell for leather at it unless you feel so obliged but even shaving a year or two off will be very welcome when you near the end of the term.
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