Should you overpay your mortgage?
There are various benefits to overpaying a mortgage, from reducing the amount of interest you owe to lowering your loan-to-value ratio (LTV). If you are wondering if should overpay your mortgage, we look at the advantages and other factors you need to consider.
Is it wise to overpay your mortgage?
There are various reasons homeowners consider making mortgage overpayments, and everyone’s situation will be different. If you can afford to overpay, this could bring you one step closer to financial freedom and becoming mortgage-free. It can reduce your monthly financial obligations and give you peace of mind as you approach your retirement.
At the time of writing, the Bank of England recently cut interest rates from 4.25% to 4%. Over a 25-year period, overpaying a mortgage might offer substantial savings and reduce the amount of interest on your mortgage. In some instances, it might also provide you with an alternate savings strategy, as mortgage payments do not incur income tax.
Also, by reducing the amount of interest you owe, you could lower your loan-to-value ratio (LTV). This might enable you to switch to a more suitable or flexible mortgage with lower monthly repayments. However, you will need to fully understand the terms of your mortgage to decide whether this is the right approach for you and to avoid any penalties.
What are the downsides of prepaying a mortgage?
Before you consider making overpayments to a mortgage, it’s important to check whether there’s an ‘early repayment charge’ (ERC). Most lenders charge early repayment fees, and if your mortgage is due to end soon, you might decide that an early exit fee isn’t worthwhile.
Although many lenders allow borrowers to pay off 10% of their balance each year without a fee, you should double check your mortgage terms. In some instances, it might be more useful to settle another outstanding or costly debt, such as vehicle finance or a credit card.
Changes to interest rates can have an impact on mortgage rates, pensions and savings. Depending on your situation, it might be beneficial to place your extra cash elsewhere, such as a pension pot or savings account.
Remortgaging deals and advice
If you’re thinking of remortgaging, then overpaying could help you reduce your loan-to-value (LTV) ratio, which could give you access to better mortgage rates. However, you need to be aware of any early repayment charges. Why not speak to us about a mortgage review?
At Bubble Finance Hub, our mortgage advice is tailored to your situation. We pride ourselves on being approachable and supportive, and we will always listen carefully to your needs.
Our award-winning brand is trusted throughout the industry for good practice.
Our experienced mortgage advisers can source hundreds of deals from a large panel of lenders and providers. As a member of the Legal and General Mortgage Club, we have access to exclusive mortgage rates, which you might not find elsewhere.
For remortgaging advice or a mortgage review, get in touch to book an appointment.
Your home or property may be repossessed if you do not keep up the repayments on your mortgage.
You may have to pay and early repayment charge to your existing lender if you remortgage.
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