By overpaying your mortgage, you could reduce your debt and save money that way. You would earn profits at the same rate as your mortgage. So, if your mortgage rate is 3%, for example, that's equivalent to savings that would generate 3% in interest. Make it very clear that you want all future overpayments to reduce the term of your mortgage.
Making overpayments on your mortgage can be a great way to save money and pay off your debt faster. You can usually make overpayments through online banking by setting up your mortgage account as a new beneficiary and then making payments as and when you want. Alternatively, you can set up a standing order to make the same amount of overpayment each month. Doing this could mean that you pay off your mortgage several years faster. Before you decide to make overpayments, there are a few points you should consider.
Most lenders have systems that allow you to make overpayments online, which might be the easiest option. You can also call or go to a local branch to arrange the overpayment. Making a single payment of a large sum instead of gradually overpaying each month will help you reduce your mortgage balance more quickly and save more in interest. It could also be an option worth considering if you've received an unexpected profit and you already have enough savings to be able to easily access and use them to cover emergencies. Once you've decided to pay your mortgage and get used to your new expenses, you may find that you have a little more cash available than you originally thought.
So should you save it or spend it? However, overpaying your mortgage can help you pay off your mortgage debt faster and save money in the long run. Keep in mind that some lenders may charge an early repayment fee, so it's worth talking to your mortgage counselor to see if the overpayment fee outweighs the other benefits of making overpayments. The savings you can make will depend on how much time you have left on the mortgage, the amount of your remaining mortgage balance, the interest rate you pay, and the amount you overpay. If you have to overpay a significant lump sum, ask the mortgage company if it will perform a calculation automatically, even if it's not the calculation date. Crucially, talking to your lender can help you avoid exceeding your mortgage's overpayment limits. Anyone thinking of overpaying on their mortgage should pay off expensive debts first, such as credit card bills, overdrafts or store cards. Ultimately, deciding whether or not to overpay your mortgage depends on your personal financial situation.
In addition to allowing you to make one-time and recurring mortgage overpayments, it also gives you an indication of what you would earn in interest if you deposited your cash in a savings account. If you're thinking about overpaying on your mortgage, it's probably because you want to reduce the amount of interest you pay and ultimately bring forward the day you're mortgage-free. So if you have a sizeable savings fund or you pay more month after month, by using your savings to reduce your mortgage loans and lower your LTV, you may have access to cheaper rates. Before you overpay for your mortgage, it's vital that you make sure that you don't try too hard financially and that you have an adequate emergency fund saved up to cover the unexpected. By overpaying your mortgage, you'll reduce what you owe much more quickly and could qualify for a lower loan-to-value (LTV) offer when your fixed interest rate ends.
If interest is calculated on a monthly, quarterly, or annual basis, you may want to be more strategic and try to make overpayments before interest is calculated. Ultimately, making overpayments on your mortgage can be a great way to save money and pay off debt faster - but it's important that it fits into your overall financial plan.
