Rise of overpayments
How many lenders allow overpayments without penalties?
When do brokers feel it is right/wrong for their clients to overpay?
Are there occasions when you advise against it?
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Making overpayments on a mortgage is very much a case by case basis for each individual. If people have savings, it is about calculating the difference between the interest received and the interest paid so in some situations people may be better off in a savings account then paying off their mortgage. Mortgage overpayments do come straight off the capital so some people build this in to their strategy. There are also offset mortgages although there is a lot of product innovation to be done with these as I am starting to get more customers interested in these due to the benefits and flexibility about having the money benefit the mortgage but it remaining accessible for unforeseen circumstances.
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Nearly all lenders will allow a 10% overpayment per 12 months on outstanding mortgage balances, with a few lenders that will offer a 20% overpayment, all without penalties. Depending on clients' circumstances, the advice is always the same - "You have the facility to make overpayments if you want to reduce your debt overall, and in turn look to reduce your monthly repayments, or reduce the term, when we next review your mortgage".
This is a personal choice for clients, and I stress should only be used as an option, if personal income/outgoings allow - the beauty of overpayments is that, it's optional. If clients have a substantial amount of unsecured debts, I advise clients, to look at clearing these unsecured debts first, as most likely these debts will already attract higher interest rates, than existing mortgage rates, before they look at making overpayments on their mortgage
This is a personal choice for clients, and I stress should only be used as an option, if personal income/outgoings allow - the beauty of overpayments is that, it's optional. If clients have a substantial amount of unsecured debts, I advise clients, to look at clearing these unsecured debts first, as most likely these debts will already attract higher interest rates, than existing mortgage rates, before they look at making overpayments on their mortgage
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Most mortgage products limit over-payments to 10% of the balance per year without penalty, though there are more flexible products for those who are looking to over-pay more. Many clients who can do so at the moment are over-paying what they can whilst still on low rates to reduce their outstanding balance which will in turn reduce the shock when their rate changes. If clients have large savings balances then offset may be more suitable, or if the clients will want access to the over-paid funds in the future then this may not be suitable.
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Most lenders will allow at least 10% with some now allowing 20% overpayment per year. The best advice for clients on this depends on the interest rate on the mortgage and what they could get from savings. For example, if their mortgage rate is lower than what they could get by sticking the money in savings, then they should put the money into savings as they will get a better return.
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Most lenders will now allow 10% overpayments of the mortgage balance annually, with some now offering 20%.
It is totally up to the client if they would like to do this, I don't think there is anything wrong with it, it's almost like saving but in a way where it isn't tempting to actually go into the savings and spend
It is totally up to the client if they would like to do this, I don't think there is anything wrong with it, it's almost like saving but in a way where it isn't tempting to actually go into the savings and spend
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Mortgage overpayments vary depending on individual circumstances, considering factors like savings and the balance between received and paid interest.
Making these decisions involves assessing whether saving returns exceed mortgage costs. Some individuals include overpayments in their strategy to reduce capital.
Offset mortgages offer flexibility and benefits, gaining popularity for their accessibility while benefiting the mortgage.
Most Lenders commonly permit 10% to 20% annual overpayment.
The optimal choice hinges on mortgage interest rates versus potential savings returns, every client's scenario is different.
Making these decisions involves assessing whether saving returns exceed mortgage costs. Some individuals include overpayments in their strategy to reduce capital.
Offset mortgages offer flexibility and benefits, gaining popularity for their accessibility while benefiting the mortgage.
Most Lenders commonly permit 10% to 20% annual overpayment.
The optimal choice hinges on mortgage interest rates versus potential savings returns, every client's scenario is different.
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Most lender's products have an overpayment allowance of some sort.
I always make sure clients are aware of how overpaying can reduce the overall amount of interest they pay and help them pay off their mortgage sooner.
However, it's equally important to warn people that it’s harder to get money out of property than putting it in!
I always make sure clients are aware of how overpaying can reduce the overall amount of interest they pay and help them pay off their mortgage sooner.
However, it's equally important to warn people that it’s harder to get money out of property than putting it in!
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Overpaying can take years off your mortgage and I always recommend it if possible. Its mostly only the BTL lenders that dont allow it.
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Most lenders allow an overpayment of 10% of the outstanding mortgage balance without any penalties but Natwest now allow 20% which was a great move on their part.
There are the odd mortgage products without a limit to the overpayments but usually they have a hefty arrangement fee.
If my clients don’t have other debts which have a higher interest rate and their savings account is offering a lower rate than the mortgage interest rate for most of them it makes sense to overpay.
I do it with my own mortgage and it enables me to have a bit more flexibility and reduce the term.
There are the odd mortgage products without a limit to the overpayments but usually they have a hefty arrangement fee.
If my clients don’t have other debts which have a higher interest rate and their savings account is offering a lower rate than the mortgage interest rate for most of them it makes sense to overpay.
I do it with my own mortgage and it enables me to have a bit more flexibility and reduce the term.
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Most lenders will allow you to overpay 10% of your balance each year even if you're on a fixed rate which is generally more than enough for most customers. It's not often when overpayments aren't a really good idea. As long as you can spare the cash being mortgage-free sooner and getting charged a whole load less interest is going to be a win-win situation.
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How many lenders allow overpayments without penalties?
The majority of lenders allow an overpayment of 10% per year, and even a select few allow overpayments of 20%, this is based on the amount you have borrowed. So if you have borrowed £200,000 for example then with the majority of lenders you would be allowed to overpay £20,000 extra over your agreed payments per year, and with some lenders it would be £40,000. For most people this is more than enough of an overpayment allowance that they wouldn’t be at risk of having to pay any penalties, and when people do have to pay a penalty for breaching their allowance they then only pay the ERC ( early redemption charge) on the amount that they breached their allowance by, so if they paid £21,000 they would only pay the ERC on the extra £1,000.
When do brokers feel it is right/wrong for their clients to overpay?
Now everyone’s circumstances are different, but what I advise all my clients to do is if they are able to that they should overpay
The majority of lenders allow an overpayment of 10% per year, and even a select few allow overpayments of 20%, this is based on the amount you have borrowed. So if you have borrowed £200,000 for example then with the majority of lenders you would be allowed to overpay £20,000 extra over your agreed payments per year, and with some lenders it would be £40,000. For most people this is more than enough of an overpayment allowance that they wouldn’t be at risk of having to pay any penalties, and when people do have to pay a penalty for breaching their allowance they then only pay the ERC ( early redemption charge) on the amount that they breached their allowance by, so if they paid £21,000 they would only pay the ERC on the extra £1,000.
When do brokers feel it is right/wrong for their clients to overpay?
Now everyone’s circumstances are different, but what I advise all my clients to do is if they are able to that they should overpay
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Most lenders allow overpayments on mortgages, the industry standard is around 10% per annum on a fixed rate. If a client is in a position to use this facility it would be wise to take advantage as it can save thousands of pounds and knock years off the mortgage. The only time I have advised against it is on the rare occasions where early repayment charges may apply, in which case it is usually better to hold off until the charges have expired.