Determine if you can pay off your mortgage ahead of schedule with the mortgage overpayment calculator.
Mortgage Hacks: Why Overpaying Could Save You Big Bucks
Worried about soaring mortgage rates? Here's a solution that might just soften the blow: Overpaying on your home loan.
By spending a bit extra on your mortgage each month, you can significantly reduce the interest you pay to your lender. This can help you become mortgage-free faster and save a ton of dough.
When it's time to remortgage, your reduced balance will mean you'll be paying interest on a smaller sum. The lighter your mortgage hangs, the less you'll owe to your lender in the long run.
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Many homeowners who find themselves at the end of a fixed-rate mortgage deal will see remortgage deals that outshine their past experience. If you've got some extra cash saved up, you might be thinking about whether to overpay on your mortgage.
Overpaying your mortgage means throwing some extra cash at your home loan principal, dramatically shrinking the interest you'll pay your lender and speeding up your path to mortgage freedom. Those who overpay and reduce their mortgage's LTV (Loan-to-Value) may even score access to a wider range of better interest rates when it's time to remortgage.
You can overpay on a regular monthly basis, as a lump sum, or a mix of both. Most lenders let their customers repay up to 10% of their mortgage balance a year without charging an early repayment fee – some banks offer higher overpayment limits. Just double-check your mortgage agreement to be sure. Can't find your original paperwork? Just drop your lender a line.
Once you know your overpayment limits, it's time to crunch the numbers. Check out our mortgage overpayment calculator to work out how much your monthly balance might change as a result of overpayments and help you decide if it's worth it. 🤑
Mortgage Overpayment Calculator
How Overpaying Could Save You Thousands in Interest
Overpaying your home loan can have a huge impact.
Consider a homeowner with a £300,000 mortgage on a two-year fixed rate of 5.39%, with a 25-year term. Overpaying by £100 a month would save £29,030 in interest and have you mortgage-free two years and six months early – according to broker L&C Mortgages.
Alternatively, a one-off lump sum overpayment of £5,000 would save you £13,701 in interest and reduce your mortgage term by 10 months.
Even if you're on a cheaper mortgage deal, overpaying can make a difference.
For example, if you overpaid by £100 a month on a £300,000 mortgage, with a rate of 2.15%, you'd save £8,734 in interest and chip off two years and four months from your mortgage term.
If you used a one-off lump sum overpayment of £5,000, with the 2.15% rate, you'd save £3,496 in interest and cut your mortgage term by seven months.
What to Consider Before Overpaying Your Mortgage
Before going all-in on your mortgage, it's crucial to tick off a few boxes:
- Emergency Fund: Set up a savings buffer equal to 3-6 months of your income to cover living expenses in case of emergencies.
- Mortgage Terms: Check your lender's overpayment terms to ensure your mortgage plan allows overpayments and how much you can overpay without incurring early repayment penalties.
- Cash Flow: Make sure your overpayments won't strain your monthly budget.
- Other Financial Goals: Weigh the pros and cons of overpaying against other financial aspirations, like investing, paying off debt, or building an emergency fund.
Is Overpaying Your Mortgage Worth It?
The answer depends on your personal circumstances, financial situation, and financial goals.
If you need help deciding what's best for you, speak to a mortgage broker who can help you navigate the intricacies of mortgage overpayments and help you find the perfect fit.
Happy overpaying – and here's to becoming mortgage-free sooner! 🎉
❗️ We explore offset mortgages in our "What is an offset mortgage?" guide.
Making extra payments towards your mortgage, also known as overpaying, can significantly decrease the amount of interest you pay to your lender and help you become mortgage-free faster. For instance, overpaying £100 per month on a £300,000 mortgage with a 25-year term at 5.39% can save you £29,030 in interest and make you mortgage-free two years and six months early. However, before you start overpaying, it's essential to consider setting up an emergency fund, reviewing your mortgage terms, ensuring it won't strain your monthly budget, and evaluating other financial goals such as investing or paying off debt.
