Homeowners are keen to take advantage of the opportunities low interest rates offer to reduce their mortgage debt. Research shows that many Brits are opting to overpay to reduce the amount they owe.
According to research from Which? almost half (46%) of homeowners have made at least one overpayment in the last year. Those aged between 18 and 24 were the most likely to overpay, with nearly seven in ten in this age category doing so. But is it the right option for you in 2019?
Increasing the amount you pay off your mortgage means the size of your loan will reduce quicker and you’ll pay less interest over the term. A significant amount of your mortgage repayments, particularly when you’re at the start of your term, pays the interest rather than reducing the debt. Overpaying allows you to reduce the loan at a faster pace. As a result, overpaying, even by a small amount, can knock months or years off your mortgage term and thousands of pounds off what you’ll pay.
Why are homeowners choosing this option now?
Low interest rates: Interest rates are still low, reducing the standard mortgage repayment. With more disposable income in comparison, overpaying is an option for more homeowners. If you’ve seen your set repayments fall over the last ten years, for example, continuing to pay the same amount can save you a huge amount and mean you’re mortgage-free sooner. Lower interest rates also mean there’s less incentive to save over paying off debt.
Increased flexibility: Economic uncertainty may mean that some homeowners are unwilling to commit to fixed higher monthly payments. Overpaying gives you more flexibility as you’re in control of the additional sums you pay. If you’re worried about whether you’ll be able to afford extra payments in the medium or long term, overpaying can provide a solution.
If you decide to overpay you have two options. You can either increase the amount you pay monthly or pay a lump sum. Before doing so, though, you should take the time to read the terms of your mortgage. Overpaying can lead to additional fees and penalties being added. Most lenders will allow you to overpay a certain amount before additional charges, typically 10% of your loan value.
You should also take steps to ensure overpaying doesn’t harm your financial security. Once you’ve overpaid, you won’t be able to access the money and you’ll still need to make your standard mortgage repayments.
What are the other options?
While almost half of Brits are choosing to reduce mortgage debt by overpaying, it’s not the only option, nor is it right for everyone. If you want to reduce how much interest you’ll be paying on your mortgage, it’s worth considering the alternatives too.
Reducing your mortgage term: If you can commit to higher repayments in the long term, reducing the term of your mortgage may be an option. You’ll need to ensure that you will be able to meet these repayments as it may be difficult or costly to alter the term again in the future should you need to. When you first take out a mortgage, the standard length is 25 years, though many first-time buyers now choose to extend this to make mortgage repayments more affordable.
Shop around for the best deals: Clearly, the lower the interest rate on your mortgage, the less interest you’ll pay over the term and the lower your monthly repayments will be too. With interest rates still low, there are many competitive deals on the market. Spending time shopping around or using the expertise of a mortgage broker can help you secure the best deal for your situation. Even a small difference can save you thousands of pounds when you look at the savings over your entire mortgage.
How we can help
If you’re looking for ways to reduce the amount of interest you’ll pay on your mortgage or how to reduce the debt quicker, we’re here to help you. With hundreds of lenders on the market, it can be difficult to find the provider that offers the product that’s right for you. Our expertise can help you with this.
Whether you want a mortgage with more flexibility to make overpayments as and when you want to or a low interest deal that will save you money in the short and long term, working with a mortgage broker can help you pinpoint what you’re looking for. Contact us today to learn more.