Over the course of the last year, pandemic lockdown restrictions have forced the UK public to remain indoors. We all had to forego adventures that would normally cost money, like dining out, entertainment, and holidays. Because of this, many people were able to increase their savings. Should you use the extra money in your bank to overpay your mortgage? And is it the right move for everyone?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Overpaying monthly mortgage payments
Overpaying your mortgage will help you reduce the term of your mortgage and bring down the overall amount quicker than anticipated. The amount you’ll save on interest will almost certainly beat the meagre interest gained if you leave your extra cash in a bank account because even though mortgage rates are low now, they might not have been when you initially secured your deal and they’re undoubtedly higher than any savings rate available.
The beauty of making overpayments when you can is that you can stop at any point and overpay however much you can afford each month. If you go through the official steps to change your payments or try to find a different deal, you’ll be on the hook for the new payment going forward even if your financial circumstances change and can no longer support the new payment amount.
When you shouldn’t overpay
There are some circumstances where it would be beneficial to use your savings surplus elsewhere.
Of course, if your provider assigns steep overpayment charges, it might not be worth overpaying on your mortgage.
If you have debts with higher interest rates like personal or student loans or credit cards, pay those off first. Additionally, if you don’t currently have enough saved for an emergency in your rainy day fund, concentrate your efforts on making sure you have enough money to last 3-6 months should anything happen to your income.
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