There’s no denying that the financial market has been somewhat volatile of late. So much so that it has impacted the way homeowners view their mortgage repayments. Many borrowers are asking, ‘Is it worth overpaying mortgages, or would I be better off saving the extra money?’
But what is an overpayment mortgage all about? How does an overpayment mortgage work? How easy is it to arrange, and is it right for you?
We’ll answer these questions, and more, as well as pointing you in the right direction to make the appropriate arrangements.
Is it Worth Overpaying Mortgage?
So in reality, is it worth overpaying a mortgage? This really depends on a few factors, which vary from person to person.
For example, the amount of money you owe will differ greatly from person to person. The average mortgage in the UK stands at around £185,000, and the most popular mortgage terms are 25, 30 and 35 years. Most lenders will agree to offer up to 4-5 times your annual salary.
If you’re still pondering, ‘Is it worth overpaying a mortgage?’ then consider this trend. In the final quarter of 2022 a staggering £6.7bn was overpaid by borrowers, in a bid to bring down their overall debt.
How Does Overpayment of Mortgages Work?
As interest rates have taken a sharp upward turn over the past couple of years – The Bank of England Base rate has gone from 0.1% – 5.25% in fact (as at Sep2023), many borrowers are finding it difficult to simply manage the minimum repayments.
If you are fortunate enough to be able to allocate funds, in a bid to pay off your debts, is it worth overpaying mortgages? The fact is, there is no downside to paying off your mortgage early. If you’ve been enjoying the benefits of a lower fixed rate then it’s certainly a good time to use available funds to pay extra, before your deal comes to an end. Alternatively a similar amount could be placed in a savings account, to make the most of the high interest rates.
How to arrange overpaying on your mortgage?
If you take the decision to overpay on your mortgage you will need to consider the conditions set by your lender. The amount you are allowed to pay off each year, over and above your initial mortgage payments, is usually set at 10% of the outstanding overall balance per year. This can usually be either as a one off lump sum or by increasing your monthly payments.
Each lender is different, and the best way to determine the best solution for you, is to speak to one of their representatives, or an independent mortgage advisor. There may be an early repayment charge that you are liable for, so be sure to ask the question when you discuss options with your lender.
Choosing to place the extra money into a savings account, benefiting from higher interest rates, is a more flexible option. It allows you to use the money for other things if necessary. Or maybe you’ll choose to wait until your financial situation feels secure enough, before paying off a lump sum.
Given the ever changing financial landscape in the UK, it’s no surprise that borrowers and lenders alike are bidding for the best deals. For unbiased, independent advice, speak to one of the advisors at Stuart Brown Mortgage Services. Their impartial guidance will ensure you are getting fair and balanced advice.