Should I Overpay On My Mortgage?


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When it comes to managing your mortgage, one of the decisions people often ask themselves is "whether or not to overpay on my mortgage".  This decision can have serious consequences for your finances in both the short and long run, so it's important to weigh all the pros and cons before making a decision

In this article, we'll explore both the benefits and drawbacks of overpaying on your mortgage so that you can make an informed choice about what's best for you.

What is overpaying on your mortgage and why would you do it

When you overpay on your mortgage, you are making extra payments on top of your regular monthly payments. The reason why you would want to do this is to save money in the long run. By overpaying on your mortgage, you can pay off your home sooner and avoid paying interest on your loan.

However, there are also some negatives to consider. If you plan to sell your home soon after buying it, then overpaying on your mortgage could be a waste of money. In addition, if you need more time to pay off your debts, then overpaying on your mortgage may not be the best solution.

Therefore, before making any major decisions about how much to pay on your mortgage each month, you should always consider all of the positives and negatives.

The benefits of overpaying on your mortgage

There are a few reasons why you might want to overpay on your mortgage. For one, it can help you pay off your mortgage sooner. 

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    This can be helpful if you're trying to get rid of your debt as quickly as possible. Additionally, overpaying on your mortgage can also help you save money in the long run. This is because it can reduce the amount of interest that you have to pay on your mortgage.
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    Secondly, if you overpay on your mortgage when it comes to remortgaging, if property prices have remained the same or risen then you will have a lower Loan to Value (LTV) which could help you get a lower interest rate when you remortgage.  Mortgage lenders take your LTV into account when they’re working out how much you can borrow and what rate you will get.
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    Finally, overpaying means that when it comes time for repayments in the future (when you sell the property or pay off your Mortgage in full), then there will be more in equity - so there's less risk to any mortgage provider lending against it.

The drawbacks of overpaying on your mortgage

When it comes to overpaying on your mortgage, there are a few things you need to consider. Firstly, you need to be sure that you can afford the extra monthly payments. If you can't afford the extra payments, then you'll end up in even more debt and will struggle to make ends meet.

Secondly, even if you can afford the extra payments, you need to think about whether or not it's the right decision for you. Overpaying on your mortgage could mean that you'll pay off your home sooner, but it could also mean that you'll miss out on some of the benefits of a lower interest rate especially if the interest on savings is higher than your current mortgage interest rates (for example if you fixed your mortgage at a low rate).

Finally, you need to consider whether or not it's a good time for you to overpay on your mortgage. This is important because if you plan to sell your home in the next few years, then you need to understand if overpaying affects the level of money you need to support for costs such as stamp duty, legal fees and even the level of deposit for your next purchase.

How to decide if overpaying on your mortgage is right for you

There are a number of things you should check before deciding to overpay on your mortgage. the key ones are:

01

Do you have any early repayment charges (ERC's) or is there a cap on overpayments? If you do, you need to be aware of the terms and conditions of your mortgage and ensure you don't trigger any penalties.

02

Do you have other debts (such as credit cards, personal loans or finance) with higher interests rates than your mortgage? You could save a lot of money by paying off these debts first instead.

03

If you have a high-interest rate on your mortgage, it might be worth it to overpay so that you can get rid of the higher interest rate sooner.

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If you have savings then it may be worth comparing the interest rate you earn on those savings with your current mortgage interest rate. If the interest rate on your savings is less than your current mortgage rate, then it might be worth paying off your mortgage early, particularly if you don't plan to move home anytime soon.

05

How long will you be living in your home? If you plan to move within a few years, then overpaying may not be worth it, especially if property prices are static or falling.

Conclusion

When it comes to mortgages, one way to reduce the amount of interest you pay is to overpay on your mortgage. This means that you will repay your mortgage sooner and save money in the long run.

Although overpaying has some benefits, there are also a few drawbacks that you need to consider before making a decision. For example, if you can't afford the extra payments or if you plan to sell your home soon, then overpaying may not be the best option for you

However, if you're able to comfortably make the extra payments and want to take advantage of lower interest rates in the future, overpaying on your mortgage could be a good idea.

It's important to weigh all of the pros and cons before deciding whether or not to overpay. If you decide that it's the right decision for you, then make sure you check your Mortgage Terms and Conditions to ensure that you're aware of any penalties before making extra repayments.

You may have to pay an early repayment charge to your existing lender if you remortgage

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