If you can afford to, does it make good financial sense to overpay your mortgage? That’s what we’re asking in the fifth part of our 7 New Year Money Tips. The simple answer is, it depends. But generally, with savings interest rates so low at the moment, it can be a smart move.
What are the benefits?
Overpaying your mortgage can make a big difference long term. For starters, you’ll be whittling down the debt you’ve built up and be able to pay it off sooner. You also won’t pay interest on the amount you overpay. And with savings rates so low, the amount of interest you save by overpaying is likely to be more than anything you’d make putting that same money into savings.
What are the pitfalls?
Most lenders will let you overpay by 10% while you’re still in the introductory fixed, tracker or discount period. But not all. Some will charge you a fee for overpaying – and that can be anywhere between 1% and 5% of the amount you overpay. So it’s always worth checking where you stand.
Equally, before rushing to overpay your mortgage, make sure you first clear any other expensive debt like credit cards or loans. And don’t rush to put every spare bit of cash into your mortgage – it’s always good to have an emergency fund that will cover your living costs for at least six months.
If you’d like to read more of our New Year Money Tips, our next instalment focuses on how you can have a clear out – and make some money into the bargain.
Book an appointment….
Disclaimer: This article does not constitute financial or other professional advice. You should consult a professional adviser if you require financial advice.