How to overpay your mortgage
A mortgage is the biggest loan most of us will ever take out. So if you can afford to pay it off early it can relieve a huge financial burden. We show you how to do it.
Low interest rates have been great news for homeowners as many people's monthly mortgage repayments have fallen.
And some are now in the lucky financial position of being able pay a little bit more than they need to on their mortgage. But why should you bother?
Overpaying is a smart move if you can afford it. It will save you money in the long run and improve the range of mortgages that will be available to you in the future.
You save money by not having to pay so much interest if you pay off your mortgage early. So if you had a £100,000 15-year mortgage with a 5% interest rate and you overpaid by £100 a month you would save £7,000 in interest and repay your mortgage two and a half years early.
Overpaying also means you'll own more of your home sooner so you'll need a smaller loan if you ever want to remortgage and that means lower interest rates.
But don't start throwing money at your lender just yet.
First, you need to work out if you can afford to overpay. You should be in a solid financial position before you consider increasing your mortgage payments.
Ideally, you should already have built up an emergency savings fund. You can't get money back from your lender once you've used it to overpay your mortgage. So aim to have a couple of grand tucked away ready for that plumbing disaster or car breakdown.
And if you've got any high-interest debt, such as credit cards or personal loans, focus on repaying that first as the interest on it will be more expensive than the interest on your mortgage.
But if your finances are sorted and you're ready to start overpaying there are still a few things to watch out for.
First, check with your lender to make sure you are allowed to overpay and if there are any limits you need to be aware of.
Most lenders have a maximum overpayment limit of around 10% of your mortgage each year. Some also have a minimum limit.
And watch out for charges. If you are on a fixed-rate or discounted-rate mortgage deal your provider may levy charges against you if you overpay too much. These are early redemption charges and they usually come into effect if you completely repay your mortgage before the term is up.
Once you've checked all these details, you are ready to increase your monthly payments and speed up your progress towards financial freedom.