Here, we explain some of the ways to do it and what you’ll need to consider.
You may be able to make mortgage overpayments up to a certain amount each year, without having to pay a fee. This will depend on the type of product you have, and will vary between lenders.
Before making an overpayment, check with your mortgage lender so you can avoid any potential early repayment charges (ERCs).
This isn’t the case for every lender, so check how much extra you can overpay on your mortgage first.
Any extra money you pay into your mortgage, on top of your usual repayment, is known as an overpayment. There are a few ways you can make overpayments:
You can make a regular overpayment in two ways:
For example, if your mortgage payment is £800 a month and you decide to increase this to £1,000, by Direct Debit or by setting up a standing order, this is an overpayment of £200.
As an overpayment isn’t part of your standard (or contractual) mortgage payment, you can amend or cancel the overpayment when it suits you.
If you want to pay more off your mortgage but would rather do it now and again, as opposed to every month, you could consider making lump sum payments.
If you’re unsure about whether you can make overpayments, how you make them, or which method to use, you can check this with your lender.
Most lenders will let you set up a Direct Debit, or transfer a lump sum to your mortgage account online or over the phone.
With a repayment mortgage, your standard monthly payment goes towards paying off the interest that’s accrued on the capital balance of your loan since your last monthly payment, as well as reducing the balance.
Overpayments go directly to reducing your mortgage balance (assuming that your account is up to date and there are no arrears). This can have a few key effects, such as:
Making overpayments on your mortgage to help pay it off early can be a good idea, but there are things you need to consider:
If you have an AOA, making overpayments could save you money in the long run, but you’ll need to make sure you stay within the limit to avoid an ERC.
Loans, credit cards and overdrafts tend to have higher interest rates than mortgages, so you may want to consider paying these debts off first, if you have them.
It can be a good idea to build up some savings to use for emergencies before paying extra off your mortgage. Ideally, you should have around 3 to 6 months’ worth of living expenses to cover any unexpected costs. That way, you’re less likely to need to borrow money to cover them.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.