Most lenders will allow you to make ‘over-payments’ on your mortgage. Overpaying on your mortgage will allow you to clear your mortgage debt quicker, saving money on interest payments. The simple fact is, that if you can afford to overpay on your mortgage you can save thousands of pounds, you will clear your mortgage quicker and save on the overall interest paid.
Recent research undertaken by ‘comparethemarket.com’ states that 58% of UK mortgage holders don’t make additional payments on their mortgage. This makes very interesting reading because almost all mortgage applicants start their mortgage journey intending to do so (or at least that’s what they tell me!).
All homeowners know that overpaying, even by relatively small amounts, can make a big difference to the number of interests paid back over the term. The sooner you begin overpaying, the better, as the extra payments have a greater period of time to have a greater effect.
The survey by Compare the Market suggests that homeowners cannot afford to make extra payments, but I feel the main reason is that life simply gets in the way we know overpaying is the “right” thing to do but let’s face it, there’s always something else you can be spending your money on, and plenty of those things are more exciting!
Part of the dilemma here is remembering to make those extra payments. It’s unlikely to cross your mind too often, except perhaps when your mortgage only has a few years left to run.
So, if you can see something of yourself in the above and would like to be making those extra payments so that, perhaps you can retire a year or two early, then what should you do?
Check first that your lender will allow overpayments, without any penalties or associated costs. Most will allow this but be sure to check first.
It’s highly recommended setting up a standing order payable to your lender each month. Set up the standing order to go out on the same day as your regular mortgage payment. E.g. your mortgage payment is, say £500pm and is collected on the 1st of the month. You can afford to pay an extra £75pm, so set up a standing order for £75pm to go out of your bank also on the 1st.
The reason for the above is that very quickly you will start to “feel” that your mortgage is £575pm and you will get used to that within a matter of months.
The big advantage of setting up a standing order to a direct debit, is you (the payer) are completely in control, unlike a direct debit where this is the receiver. Therefore, if you find yourself a little tight with money one month. You can easily log in to your online banking and pause the standing order so that it would cancel any future payments from going out until reactivated.
Up until the point of stopping the payments, at least you have benefited from the additional payments made until that point, and as mentioned above, this does not stop you reactivating your standing order in the future when you are more financially comfortable.
Some mortgages will even let you make reduced payments or take a payment holiday if you have been overpaying for a while. Before choosing a payment break though it’s essential to check with your lender that you are eligible to do so to avoid a bad mark on your credit report.
Whether a First Time Buyer in Derby or going for a Remortgage in Derby, overpaying your mortgage is a great habit to get into. You will be reducing the amount of actual debt you owe each month. You don’t need to overstretch yourself, simply making affordable additional payments each month could result in shaving a year or two off your mortgage in the long run.