Overpaying a Mortgage

17 June 2022

Independent mortgage adviser, David Lauder has shared what you need to know about making overpayments on your mortgage.

At present, there are many different types of mortgages available. However, many people are unaware that almost all of these have an overpayment facility available. This includes the most popular types of mortgages, which are fixed/tracker rates during the chosen preferential period.

What are mortgage overpayments?

An overpayment facility means, you can pay in lump sums or regular overpayments, without any penalty, for typically 10% of the capital balance outstanding per annum during the chosen preferential rate period. 

Benefits of overpaying a mortgage

The benefit to overpaying a mortgage is essentially, your mortgage balance will reduce and in turn, so will the term, if you keep the monthly repayments the same. This means you could potentially save thousands in interest over the whole mortgage term, as it is a purely capital payment with no interest accrued to it.

What overpayment options are available for my mortgage? 

Some providers offer the choice to reduce the payments in line with the revised balance, which is especially helpful for maternity leave or sabbatical breaks in employment. 

If a 10% overpayment is not enough, then there are other options available. Offset mortgages are popular – this is where you can use existing savings to be offset against the mortgage balance and you will only pay the interest on the difference between the two.

No tie-in products are another option, these allow you to make unlimited overpayments at any given time, without any penalty. Although, please note that the rates are likely to be higher for the additional flexibility on the offset and no tie-in options, so it really depends on how well you intend to use this facility.

Overall, an overpayment facility is an option that is not used enough and is available on most mortgages. If circumstances allow, this facility can be very powerful as the total interest payable could be considerably less during the mortgage term, which in turn results in more money in your pocket – even small, regular monthly increases of £50 will provide significant saving over the total term over the course of time.