With the cost of living soaring and mortgage repayments rising, making additional payments on your home might be the last thing on your mind. Yet, if you’re in a position to do so, it may cut the cost of borrowing over the long term.
To tackle rising inflation, the Bank of England (BoE) has increased its base interest rate from historic lows to 5.25% as of November 2023. This has had a direct effect on the mortgage repayments of many homeowners and your own outgoings may have increased as a result.
In October, the Bank’s Monetary Policy Committee opted to hold interest rates despite inflation falling sharply.
The Guardian reports that BoE governor Andrew Bailey said it was “far too early” to consider cutting interest rates. Indeed the Office for Budget Responsibility forecasts that interest rates may remain around their current level until 2028.
While higher interest rates could place your budget under pressure, they could also mean there’s even more value in overpaying your mortgage if possible. Read on to find out why.
3 financially-savvy reasons to overpay your mortgage
1. You could be mortgage-free sooner
One of the reasons you might consider overpaying is to be mortgage-free sooner. It could ease the pressure on your budget in the future and mean you can focus on other goals. A mortgage is often the largest loan you’ll take out, so paying it off can feel like a real accomplishment and improve your wellbeing too.
2. You will reduce the amount of interest you pay
The interest added to your mortgage is calculated as a percentage of your loan. When you make an overpayment you’re reducing the outstanding value of the loan, so the interest added in the following months will be lower. As a result, overpayments could save you money overall and it may be even more valuable when interest rates are higher.
3. You could benefit from greater flexibility
Overpaying your mortgage could mean you have more options in the future. For example, if you need to take a repayment holiday because your income has unexpectedly stopped, you may be able to pause your repayments because you’ve overpaid in the past.
How overpaying your mortgage by £200 could save you thousands
As overpaying will affect the interest added to your mortgage, it could reduce the total cost of borrowing by more than you expect.
Let’s say you borrowed £200,000 through a repayment mortgage with a 25-year term. If you had an interest rate of 5%, your regular repayment would be around £1,170 each month. Assuming the interest rate remained the same, you’d pay more than £150,000 in interest over the full term.
Now, if you paid an additional £200 each month, you’d be mortgage-free six years and two months sooner. What’s more, you’d save more than £40,000 in interest alone.
So, making an overpayment could make sense financially when you look at the long-term outcomes.
Check if you’ll face a fee when overpaying your mortgage
In most cases, you can pay off up to 10% of the outstanding value of your mortgage each year without incurring a fee. However, this isn’t always the case, so it’s worth reviewing your mortgage contract.
If you could be charged a fee, you might want to calculate how it compares to the interest you’d pay without making the overpayment. It might still be worthwhile financially.
Contact us if you’re searching for a new mortgage
If your current mortgage deal has come to an end, searching for a new one could help you access a more competitive rate of interest. We may help you find a mortgage that suits your needs, including the flexibility to overpay if you’re keen to reduce your mortgage debt quickly.
Please contact us to arrange a meeting to talk about your mortgage needs.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. |
Approved by The Openwork Partnership on 12/12/2023.
More posts like this
Sign up to our newsletter
September 24, 2024
How to beat the winter blues this year
September 24, 2024
The potential money saving benefits of locking in a mortgage deal early
September 24, 2024
74% of financial advice from social media leads to an “undesired outcome”
September 24, 2024
Regular financial reviews may help you get more out of every stage of life
September 24, 2024
How to use your mortgage to fund a renovation project
September 24, 2024
5 sensible steps to take if your fixed-rate mortgage deal ends in 2024
August 13, 2024
Two-thirds of UK adults don’t have a will. Here’s how it could affect your legacy
August 13, 2024
Research: Lifestyle changes could relieve the symptoms of Alzheimer’s
August 13, 2024
How your mortgage interest rate affects the cost of borrowing
August 13, 2024
What does a Labour government mean for the property market?
August 13, 2024
4 unpredictable life events that could mean you’d benefit from a financial review
August 13, 2024
Why tuning out political speculation may help you stick to your financial plan
July 16, 2024
How to select a mortgage that’s right for you from thousands of options
July 16, 2024
More than half of homeowners don’t have enough life insurance to protect them
July 16, 2024
How to effectively protect your identity and your finances from criminals
July 16, 2024
Higher-rate taxpayers: Beware of the 60% tax trap
July 16, 2024
78% of retirees could be missing out on investment returns by accessing their pension early
July 16, 2024
The surprising effect your childhood has on your money mindset
June 14, 2024
Investment market update: May 2024
June 14, 2024
Here’s how rising interest rates have affected the property market
June 14, 2024
Uncertainty drives record numbers to take out income protection. Here’s what you need to know
June 14, 2024
Explained: When do you need to declare the interest earned on savings?
June 14, 2024
3 practical ways you could reduce your tax bill in retirement
June 14, 2024
How a financial plan could alleviate your inflation worries
May 16, 2024
8 fantastic reasons to support local causes for Small Charity Week
May 16, 2024
10 unexpected effects of the work-from-home trend
May 16, 2024
1 in 5 people expects to be paying their mortgage in retirement
May 16, 2024
Should you wait for interest rates to fall before fixing your mortgage?
May 16, 2024
The essentials you need to know about critical illness cover
May 16, 2024
4 compelling reasons you might want to consolidate your pension
April 23, 2024
6 delicious holiday destinations that promise to be perfect for foodies
April 23, 2024
Unpaid overtime totalled £26 billion in 2023. Here are 5 practical tips for seeking more support
April 23, 2024
First-time buyers still face major challenges as the Budget overlooked support
April 23, 2024
Mortgage holders could benefit from rising property prices as an average sale made £74,000 in 2023
April 23, 2024
Running out of money tops retirement concerns, but financial planning could bring peace of mind
April 23, 2024
What you need to know about taking your pension tax-free lump sum in 2024/25
March 19, 2024
Are you risking a pension shortfall by overlooking longevity?
March 19, 2024
Here’s what you need to know about the “Magnificent Seven” stocks that are driving the market
March 19, 2024
Retirement planning: The 3 main ways you could access your pension
March 19, 2024
3 savvy tips that could help you pay off your mortgage sooner
March 19, 2024
How to calculate the level of income protection that would provide you with financial security
March 19, 2024
1.5 million households could see their mortgage repayments soar when their deal ends in 2024
February 09, 2024
Could 25-year fixed-rate mortgages soon provide borrowers with peace of mind?
February 09, 2024
The government could launch 99% mortgages to support first-time buyers
February 09, 2024
Mortgage availability is rising. Here’s what to consider when narrowing down your options
February 09, 2024
A Lasting Power of Attorney could offer protection at every life stage
February 09, 2024
5 handy tips that could help couples create an effective financial plan
February 09, 2024
The ups and downs of the FTSE 100 40-year history demonstrates time in the market matters
January 10, 2024
The feel-good news stories you might have missed in 2023
January 10, 2024
Why taking out life insurance alongside your mortgage could provide peace of mind
January 10, 2024
4 insightful property market predictions for 2024
January 10, 2024
3 important figures to review on your payslip to manage your short- and long-term finances effectively
January 10, 2024
The 3 essential pension decisions you should review to avoid becoming a “triple defaulter”
January 10, 2024
Retirement planning: Should you consider a phased retirement?
December 18, 2023
Why joining the “5 am club” could boost your productivity and wellbeing
December 18, 2023
How overpaying your mortgage could save you money in the long term
December 18, 2023
Housing shortage: Could a downsizing Stamp Duty relief provide a solution?
December 18, 2023
IMF predicts interest rates squeezing mortgage holders won’t start to fall until 2028
December 18, 2023
The families of 6 in 10 over-75s could face challenges if they lose mental capacity
December 18, 2023
2 Autumn Statement announcements you may have missed that could simplify your finances
November 23, 2023
Investment market update: October 2023
November 23, 2023
Why an offset mortgage could cut your mortgage repayments and provide flexibility
November 23, 2023
Should you choose a fixed-rate mortgage when your current deal ends?
November 23, 2023
Did you use the Help-to-Buy scheme? Inflation could affect your repayments
November 23, 2023
How much life insurance will provide your family with security?
November 23, 2023
How to help your family manage your affairs when you pass away
October 31, 2023
Investment market update: September 2023
October 31, 2023
5 practical steps first-time buyers can take to make putting in an offer smoother
October 31, 2023
Half of mortgage borrowers stick with their lender, but it could mean paying more interest
October 31, 2023
3 essential factors to consider if you plan to gift wealth to avoid Inheritance Tax
October 31, 2023
HMRC collects a record amount in Capital Gains Tax. Here’s how you could manage your liability
October 31, 2023
Here’s why pension reforms mean you might want to reconsider your retirement plan
September 30, 2023
Investment market update: August 2023
September 30, 2023
The Bank of England warns mortgage repayments could jump by £500 for 1 million households
September 30, 2023
Soaring interest rates are driving more people to consider interest-only mortgages
September 30, 2023
The 2023 parents’ essential guide to student loans
September 30, 2023
7 practical reasons to make a Lasting Power of Attorney now
August 30, 2023
5 powerful reasons to learn more about your pension today
August 30, 2023
A grocery shop would cost just 45p in 1940s when the first supermarket opened its doors
August 30, 2023
Here’s what mortgage lenders consider when carrying out affordability tests
August 30, 2023
4 practical steps landlords can take to protect their income
August 30, 2023
Choosing the right financial protection when you take out a mortgage could boost your mental health
August 30, 2023
Investment market update: July 2023
August 30, 2023
6 practical steps to take if you have a “credit blip” and want to apply for a mortgage
July 31, 2023
Do you need to plan for a retirement without the State Pension?
July 31, 2023
7 common but potentially harmful Inheritance Tax myths debunked
July 31, 2023
8 in 10 first-time buyers risk inaccurate information as they turn to social media for tips
July 31, 2023
The 3 types of tax you need to understand before investing in buy-to-let
July 31, 2023
These are the 5 core traits of the wealthy, according to an interesting study
June 30, 2023
7 beautiful European destinations if you want to explore nature
June 30, 2023
5 practical steps to speed up buying or selling property
June 30, 2023
Want to retire early? Financial planning could make it a reality
June 30, 2023
5 compelling non-financial reasons to work with a financial planner now
June 30, 2023
100% mortgages return to the market. Are they a solution for first-time buyers?
June 30, 2023
As interest rates soar, should you remortgage your home in 2023?
May 31, 2023
Received an inheritance? Here’s why you should consider boosting your pension
May 31, 2023
5 essential money lessons that could improve your child’s financial independence
May 31, 2023
Could property present a viable alternative to pension savings for retirement?
May 31, 2023
Selling your home? These 10 simple changes could help you increase its value
May 30, 2023
4 red flags that could be signs of a scam and what you need to know about them
April 30, 2023
Self-employed? Read these 6 useful tips before applying for a mortgage
April 30, 2023
Forget the new year, spring is the perfect time to set new goals
April 30, 2023
Investment market update: March 2023
April 30, 2023
New-build properties often have a premium, but there are positives too
April 30, 2023
4 valuable ways a financial planner can help you tackle “overwhelming” pension information
April 30, 2023
The FTSE 100 reached an all-time high despite recession fears
March 31, 2023
Earth Day 2023: Small but powerful ways you can improve the environment
March 31, 2023
Can you guess the average house price on the most expensive street in the UK?
March 31, 2023
3 useful ways a mortgage broker can help you navigate a market that changes quickly
March 31, 2023
Missing financial protection triggers could leave you vulnerable to shocks. Find out why here
March 31, 2023
5 practical things to check as part of a financial midlife MOT
March 31, 2023
Explained: How pension tax relief works and boosts your retirement savings
February 28, 2023
Explained: Your 3 main options when accessing your pension for the first time
February 28, 2023
Identity theft: Discover 5 useful tips to protect yourself as cases double
February 28, 2023
5 useful ways the Bank of Mum and Dad could help first-time buyers
February 28, 2023
Millions of fixed-rate mortgages are ending. Discover 6 practical steps you can take now
February 28, 2023
100 British companies back the 4-day working week. Could it start a workplace revolution?
February 28, 2023
Investment market update: January 2023
January 31, 2023
5 fantastic reasons to work with a mortgage broker
January 31, 2023
61% of Brits feel stressed about later-life planning. Here are 5 things you can do to boost your confidence
January 31, 2023
5 surprising financial planning lessons you can learn from the release of Avatar 2
January 31, 2023
7 important things you should check on your credit report before you apply for a mortgage
January 31, 2023
How to set out goals to achieve success in 2023
January 31, 2023
Here’s what happened in the property market in 2022 and how it’ll affect this year
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
February 03, 2022
Sample post
November 29, 2018