Daily Express - Best savings tactics to overpay a mortgage

Overpayments are something I push my clients to do when possible. I find most applicants find it much easier to overpay each and every month by just increasing their regular monthly payments. Of course, by doing so they get the option of either lowering their term or lowering their monthly payment. In this current market, anything to lower clients' monthly payments is a welcomed benefit.

The alternative method of overpaying which I have personally used myself is to set up an offset mortgage, therefore everything you are able to save is offset against your mortgage payments. Depending on the amount saved this can quickly save the applicant thousands of pounds in interest on their mortgage.

The simplest way to over pay your mortgage is to ask the lender to adjust the direct debit, so for example increase your standard £744.18 payment to £800. Many lenders will allow you to make this adjustment online, some over the phone. You do however need to ensure that your mortgage deal allows overpayments, not all do, and check if you have any limits to the amount you can overpay before incurring penalties. The great thing about overpaying in a mortgage is that even very modest amounts can grow, think about the tiny snowball at the top of hill in cartoons, that’s the size of a house at the bottom, it’s the same sort of thing - what starts as a tiny overpayment grows into a large saving in interest over the lifetime of the mortgage.

At Alfa Mortgages we discuss the benefits of overpayments with every one of our clients. Where affordability permits, the majority of clients want to repay their mortgage early so opt for overpayments to reduce the term, meaning there is less time for interest to build up, so they end up repaying less overall, making a saving on the interest paid back as a result.

We find a good place to start with our clients is by demonstrating the impact of overpayments by looking at a mortgage overpayment calculator and comparing this to calculating accruing interest in a savings account over the same time period. Having the pounds and pence figures in front of them illustrates what’s best for them.

The best way to overpay your mortgage as a self-employed applicant without committing to any further monies is to utilise an offset mortgage and credit the money you save for your upcoming tax bill into the linked mortgage bank account. This will immediately give you an interest saving as the total debt outstanding will reduce whilst your tax monies are within the account. If you then maintain the same monthly mortgage payment that you would have made without your tax bill monies being taken into account you'll be overpaying your mortgage. For employed applicants rounding up your monthly mortgage payments to the next round hundred (e.g. make a £721 payment £800) can quite quickly over time chip away at that mortgage balance and related overall interest bill.

By making regular overpayments you can potentially save a significant amount in overall interest on your mortgage. It can be a great way to shave years off of your mortgage, and it should be simple to arrange.

It’s important to make sure that the lender offers an overpayment facility with no penalties before committing to an overpayment to avoid potential charges.

That said, overpayments might not be for everyone. I think it’s important to have a ‘rainy day’ fund of to cover unforeseen expenses first. You might want to also weigh up whether to make overpayments on your mortgage or invest the money elsewhere, which is something an investment adviser can help with.

Overpayments are a savvy way of saving ££'s off your mortgage debt it's an additional payment you would make over your usual monthly mortgage payment. A great way of doing this is to increase your monthly repayment from say £1,352.57 to £1,500 per month or you could make a one-off lump sum payment. You should ensure any over-payments you make are within the parameters of your allowance otherwise you will end up paying an early repayment charge. Most lenders allow you to pay off 10% and a few will allow you to pay off 20% of the outstanding balance.

However, if other debts are costing you more, it would be prudent to pay these off first.