What You Need To Know About Overpaying a Mortgage

21 April 2021

David Lauder, an independent mortgage adviser explains how mortgage overpayments work, and what benefits they could have for you.

How Does it Work?

If you are unaware that almost all mortgages have an overpayment facility available, you’re not alone! Many people do not know this exists. It includes the most popular types of mortgages that offer fixed/tracker rates during the chosen preferential period.

The majority of these mortgages will offer an overpayment facility which means you can choose to pay a large sum or regular overpayments of typically up to 10% of the capital balance per annum during the chosen preferential rate period without any penalty.

The Benefits of Overpaying a Mortgage

The balance will reduce and so will the term if the repayments are maintained. This could result in you potentially saving thousands of pounds in interest over the whole mortgage term as it is a pure capitol payment with no interest accrued to it.

Offset Mortgages

If you feel a 10% overpayment is not enough, there are plenty of other options available. Offset mortgages are a popular choice, you can offset existing savings against your mortgage balance and you will only pay interest on the difference between the two.

No tie-in Products

No tie-in products are another option, this allows you to make unlimited overpayments at any time without any penalty. However, the rates are likely to be higher since they carry additional flexibility on the offset and no tie-in options, so these products benefits depend on how well you intend to use them. 

Is it Worth Overpaying a Mortgage? 

Overall, the overpayment facility is an option that is available on most mortgages but not used enough.

If allowed, it can be a very useful tool as your total interest payable could considerably decrease during the mortgage term, which will result in more money in your pocket. Even if the increase is £50 per month, the results will provide significant savings over the overall term. 

If you need any more advice on mortgages or overpaying your mortgage contact one of our member firms, they are always happy to help!