Copy article

Mortgage overpayments

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 19. April 2024

Interested in speaking to mortgage brokers about mortgage overpayments. 

Martin Lewis recently recommended on his podcast for people to overpay in certain scenarios. 

https://www.independent.co.uk/tv/lifestyle/money-martin-lewis-mortgage-advice-b2530887.html 

  1. Are people enquiring about mortgage overpayments? Or is the cost of living having an impact? 
  2. When would you recommend customers overpaying a mortgage? 
  3. What are the advantages and disadvantages?

14 responses from the Newspage community

Copy all

Copy

Editor
David Stirling
Independent Financial Advisor at Mint Wealth
As part of our mortgage consultations we always run through a mortgage overpayment calculator with our clients - this is basic financial coaching and education. As most lenders allow overpayments of 10% per year, this can signifcantly reduce a client's term and save them thousands of pounds of interest payments.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
We have seen a small number of enquiries about lump sum reductions to mortgage balances as a way of keeping costs down, for the real benefit you need to get the timing right. Repaying a lump sum whilst enjoying a low mortgage rate seems a waste whilst savings accounts are offering 4%+ rates, so its best to time it at the point of remortgage or transfer to a new deal. Just remember that by repaying some of the mortgage if you need that money back, you will need to apply for a further advance which may attract higher rates and more costs, and the lender may also decline the request too. Consider the flexibilty of cash savings and don't commit everything only to create a problem later. Savings rates are near the level of mortgage rates, so do your homework.
Copy

Editor
Ben Perks
Managing Director at Orchard Financial Advisers
Overpayments kick the backside out of mortgages! Making overpayments is a great habit for borrowers to get into as it will significantly reduce the interest you pay over the lifetime of a mortgage.
The sad reality is that with soaring interest rates people are struggling to make the mandatory payments, so they certainly dont have the option to pay a little extra on top.
Paradoxically, in times when rates are high it is the best time to overpay and reduce your mortgage balance.
Copy

Editor
Dariusz Karpowicz
Director at Albion Financial Advice
Currently, inquiries about mortgage overpayments aren't as frequent; many customers are already stretched thin by the cost of living. However, overpaying a mortgage can be incredibly beneficial. It's particularly advantageous for those still locked into lower rates who haven't yet felt the sting of higher rates. The primary benefit of overpaying is the significant reduction in the total interest paid over the life of the mortgage. Frankly, there are no real downsides to overpaying, provided you're not sacrificing essential expenses or emergency savings to do so. It’s a financially sound strategy when feasible.
Copy

Editor
Simon Bridgland
Director at Charwin Private Clients
Whilst it is a good idea to overpay for many scenarios, its not right for all. I am certainly not seeing an uptick in enquiries about the need to make overpayments.
Overpayments on traditional mortgages would be recommended if affordability was there in the household budget and if it made sense to do so. If retirement is looming then getting mortgage debt reduced as fast as possible before incomes reduce is the logical thing to do.
Personally I regularly see clients looking to take out lifetime mortgages and in quite a few of these cases, it is not in their interest to make payments at all. If they have no one specifically that they want to leave their estate to on death, then who will ultimately benefit from a greater amount of equity on death. Its often better for the clients current lifestyle not to service the interest each month and let the debt roll up, as this will afford the client with a greater level of income available in their purse each month for their own benefit.

Copy

Editor
Michelle Lawson
Director at Lawson Financial
When making overpayments on a mortgage, considerations have to be made on the financial benefit and this will depend on the interest rate. The aim is to reduce any debt as quickly as possible but channeling the funds correctly is important. You should always clear the highest interest rate bearing items first so this is usually a credit card. Most lenders will allow overpayments which come straight off the capital but for any borrowers with savings, they could also consider an Offset mortgage.
Copy

Premium
Denni Tyson
Mortgage and Protection Advisor at Henchurch Lane Financial Services
There has certainly been more enquiries as to the impact of overpayments. I have been a strong advocate with clients to overpay, especially those that in their final 15-20 years of their residential mortgage. I think it's also due to the sheer rate increases that many have experienced and those taking advantage by overpaying until their rate will eventually increase.

The advantages are huge for those on a lower rate and anyone on a rate below 3% should be taking advantage of these lower rates to ensure they lower their mortgage balance.
Copy

Robert Timm
Managing Director at Sunland Mortgages
The majority of people who have remortgaged or bought after the Truss/Kwarteng budget are on a signifcantly higher rate now, so those people are not enquiring about overpayments, many are just trying to keep their heads above water.

Anyone who hasn't yet remortgaged or bought since that period are likely on a decent rate, so for them it could be beneficial to overpay as it would leave them less to need to flip onto a higher rate when that time comes. It could also put them down a tier in terms of loan to value, where they could benefit from a slight reduction in rate and therefore monthly payment. But as time goes on, less and less people are on rates starting with a 1 or 2, and more have a rate that starts with a 4, if you're lucky, or 5 and 6.
Copy

Peter Stokes
Director of Mortgages at Davidson Deem
Certainly borrowers still enjoying a low fixed rate tend to enquire about overpaying, and we actively encourage this, so they can lessen the payment shock later.
We also see many borrowers have concerns about taking a mortgage over a longer term, often right up until retirement date or sometimes past it. We point out that overpayments are a great way to reduce this mortgage term, but keeping this additional payment flexible and not contractual.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whenever we hear about overpayments on your mortgage, it's extremely easy to dismiss, thinking about people paying off chunks of cash at a time, maybe hundreds or even thousands of pounds, from bonuses or inheritance. But an overpayment could be as simple as asking your lender to round your monthly repayment up from, say, £857.62 to £860 each month. That £2.38 may seem inconsequential, but over the term of a 20- or 30-year mortgage it can mean you pay it off months early, saving hundreds or even thousands of pounds. The only thing you need to be careful of is ensuring your mortgage allows you to make penalty free overpayments and to what limit, then ensure you do not exceed that, or you could incur an early repayment charge.
Copy

Graham Cox
Director at Bridging Hub
If you can afford it, making overpayments is hugely beneficial, particularly now interest rates are much higher. Overpaying can save you tens of thousands of pounds in mortgage interest. And as long as you don't reduce your monthly repayment amount, you'll become mortgage-free much earlier as well. One or two lenders even allow overpayments of 20% of your mortgage balance each year without incurring early repayment charges, but a 10% allowance is common.
Copy

Gary Bush
Financial Adviser at MortgageShop.com
Overpaying on mortgages is something homeowners should always be looking to do to lessen the overall interest bill over the term of the loan, however, during the last 2 years it's been more the case that mortgage account holders have taken advantage of the Mortgage Charter and opted for 6 months of interest only to assist their household budgets instead.
This is traffic going in the wrong direction in terms of paying down homeowner debts however consumers, on the whole, just don't have the capacity at the moment to even consider paying more than their contractual monthly payments after the relentless interest rates rises sadly. Let's hope that the Bank of England monetary committee is reading this in readiness for their next meeting.
Copy

Austyn Johnson
Founder at Mortgages For Actors
I always recommend overpayiong as much as you can and trying to see that as the main mortgage payment. That way, if something happens and you need to cut back, you can cut 10% back without any issues, fees or problems. Overpaying is the best way to pay down the capital on your mortgage as its the most flexible way. £10 this month, £300 next month, £0 the one after. If you can strip years off your mortgage term by doing this, then you should do all you can to do it.
Copy

Stuart Powell
Managing Director at Advice Guru
Overpaying each month on your mortgage must be a priority for any homeowner who is able to. Just rounding up your payment to the next £10 or £100 can save thousands over the mortgage term.
Many of us forget about the mortgage payment unless a big shock occurs (interest increase usually), however overpaying can soften the blow in two ways.
Firstly, if you over pay, your mortgage balance will reduce quicker so any interest increases affect you less.
Secondly, if you overpay, interest rate increases may bite into your overpayments but you may well still be overpaying rather than seeing your Direct Debit increase.
Finally, if interest rates decrease, if you can, keep your payment the same. After all, you managed to pay it before the rate decreased.