How do I make overpayments on my mortgage?

Calculating the cost of the mortgage. Real estate taxes, house overpayment on credit.

David Beard at Lending Expert explains how mortgage overpayments could help you save - Credit: Getty Images/iStockphoto

If you feel comfortable with your financial position, you might look at overpaying on your mortgage to bring down the overall cost.

Rather than having to pay off the same amount on your mortgage each month over 5, 10 or 20 years, an ‘overpayment’ allows you to reduce this overall balance, which should save you money on the interest that adds up.

To make an overpayment, speak to your mortgage provider and you should be able to complete payments through online banking by setting up your mortgage account as a new payee or by setting up a standing order each month.

To find out more about overpayments, we speak to David Beard, the founder of price comparison site LendingExpert.co.uk, who provides his insight. 

Choose to reduce your mortgage term

“If you are looking to make an overpayment on your mortgage, make sure that you are reducing the overall mortgage term, rather than just reducing next month’s payment,” explains Mr Beard.

“If you are just paying next month’s payment, you are only saving a tiny bit of interest. But if you pay off future months and reduce the mortgage term from something like five years to three years, this is a serious saving.”

“Overpayments are common, especially if homeowners are more comfortable financially or have come into some money – and you could save thousands or tens of thousands by doing it right.”

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Can I overpay on my mortgage regularly or as a one-off? 

“It is possible to make one large overpayment and this should hopefully help to reduce your mortgage term and the overall amount you pay on your mortgage,” says Mr Beard.

“You also have the option to make regular monthly overpayments by setting up a new standing order to be taken each month. This might be better for some, because if you pay too much, this might leave you with less cash available for an emergency or other important expense. Hence, some people prefer to spread this overpayment and run the numbers so that they still make a saving.”

Can overpayments help with saving when deciding to remortgage?

“Yes, overpaying on your mortgage can also really benefit you if you are looking to remortgage,” Mr Beard confirms.

“When you remortgage, you are essentially getting a new mortgage deal, with more favourable terms. If you have paid off more of your mortgage, your loan to value (LTV) ratio falls and you will therefore own more of your property and need to borrow less – so you should get access to a cheaper deal than before.”

“You will need to be below the LTV threshold to make your next mortgage much cheaper – and if you borrow less than 60% LTV, this could offer you some really competitive rates.”

Check the terms

“It is always important to check the terms of your mortgage agreement and what the rules are when it comes to overpaying,” adds Mr Beard.

“Some mortgages have introductory offers, such as fixed-rate mortgages, and they may only allow you to overpay 10% of the mortgage balance, so you will need to run the numbers to see if this will result in a saving.

“To be sure, you can always ask your mortgage provider for more information.”

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.

For a free remortgage quote, you can speak with Lending Expert today on 0161 820 8099 or check your eligibility today.

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