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This month, Independent Mortgage Adviser, Chris, discusses the benefits of making structured overpayments to your mortgage and whether it is a wise decision for you. Read more, including this month’s BEST RATES, here.
This does not constitute advice and advice should be sought in all instances before acting on it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Making structured overpayments to your mortgage
It is likely that when you first move into your home, any spare cash, and more, will be spent on new furnishings, renovations and accessories, to “make your house your home”.
Particularly, if it is your first home it can take a while to get accustomed to paying your mortgage, as well as your household utility bills.
However, once the settling-in period is over, you may find you have some disposable income. Or, maybe you have just got a pay-rise, or your overall financial position has changed.
Many people will find this extra income gets frittered away each month on travelling, shopping and dinners out, all of which are of course nice to do.
However, if you have your eye on your future, then making overpayments to your mortgage could make sense for you.
Benefits to mortgage overpayments
There are two key benefits to making structured overpayments to your mortgage.
- You pay less interest over the term
- You lower the term of your mortgage
Even a relatively modest overpayment can shave years of your mortgage and ensure you keep more money in your own bank over the longer-term.
For example, pay just £100 per month extra into a £100,000 mortgage with a 25 year term and an interest rate of 4%, and you could be mortgage-free 6 years earlier. Plus, you will have saved over £15,000 in interest payments!
Some lenders do make charges for overpayments, although most build in a percentage of the loan that can be paid without a penalty.
Work with a mortgage broker that can weigh everything up for you and ensure your mortgage is flexible enough to allow for overpayments if you choose.
Who benefits from overpaying?
Making overpayments isn’t for everyone. If you don’t have any disposable income, or need to have money for contingencies it may not work.
Overpaying a mortgage works best when you are in a secure, financial position, with excess income.
It is really geared towards homeowners that want to be mortgage-free sooner and therefore can profit from paying less interest by clearing their debts quicker.
If you are nearing retirement and still have a substantial mortgage, overpayments could be a consideration, whilst you are still working.
Most overpayment arrangements are flexible. If you suddenly need the money for something else then it is possible to reduce back to the original mortgage payment.
Similarly, if you get a promotion or some money comes your way, the overpayment can be increased.
Mortgages for Doctors and Dentists – Best Rates
If you are looking to move house, or buy an investment property in the near future, keep an eye out every week for our Mortgage Monday – updated rates and best deals, including 95% mortgage options for first-time buyers.
Sample best rate mortgages:
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Read more of Chris’s monthly mortgage features:
- Getting a mortgage with a low credit score – is it possible?
- Low rates are important but so are low fees
- Save money with an offset mortgage
Get a mortgage review with Chris
If you would like us to undertake a review of your current mortgage deal and discuss making structured overpayments to your mortgage, please contact Chris:
Tel: 01403 780 770
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