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Should I overpay my mortgage?

Not sure? If you have lots of spare cash and you don’t know what to do with it, then you may consider overpaying your mortgage a good option.

Two people discussing whether they should overpay their mortgage

If you have lots of spare cash and you don’t know what to do with it, then you may consider overpaying your mortgage a good option. Never thought about it before? Then keep reading to find out if it's for you or not!

What is a mortgage overpayment?

Mortgage overpayments are extra payments towards an existing mortgage loan. While your fixed monthly repayment amount is set by your lender, it’s possible to pay an additional amount on top of this. This can be done in two ways.

First, you can pay through a lump sum payment, for example, if you have recently inherited money or received a bonus from work. The second is by increasing your monthly repayments if your salary has increased or your interest payments have decreased.

Why would I want to overpay my mortgage?

Mortgage debt is likely the biggest financial burden you will carry during your lifetime. When you consider monthly expenditures, your mortgage repayments will most likely be the biggest outgoing. So it’s natural that people want to clear this debt as soon as possible! And overpaying on a mortgage allows them to do just that.

Depending on how much you choose to pay, mortgage overpayments can reduce the length of your mortgage term and reduce the amount of total interest you will pay on your loan.

Main benefits of mortgage overpayments

  • Reduces the time it takes to pay off your mortgage.

  • Reduces the amount of interest you need to pay.

  • Reduces the total repayment amount of your mortgage.

What are the downsides of mortgage overpayments?

When taking into consideration the enormous savings you could make when overpaying on your mortgage, the obvious answer is yes. But there are some possible disadvantages you should think about.

Lender restrictions

Check with your lender to see if there are any restrictions when it comes to overpaying. This is usually the case for fixed-term mortgages. Restrictions may come in the form of an annual cap on overpayments, a financial penalty for overpaying, financial penalties on overpaying too much, or no overpayments at all.

Other debts

It’s possible that you have more than one debt you’re paying off each month. Your mortgage is just one. And while a large amount of debt may seem like a burden, it is usually one of the cheapest ways to borrow money.

Before committing to repaying, be sure your extra cash could not be put to better use like paying off high-interest credit cards or loans, which are far more expensive ways to borrow money.

Once it’s gone, you can’t get it back

Overpaying is not like putting money into a bank account which you can later take back if you desperately need it. Once it’s gone, it’s gone. So make sure you have enough saved up in a separate pot for financial emergencies and only use your spare cash for mortgage overpayments if you are able to comfortably.

So, should you overpay your mortgage?

The answer to that depends! If you are financially secure with a good salary, a large emergency savings funds, and you’re not busy paying off other high-interest debts, then overpaying your mortgage may be a viable option for you to cut the length of your mortgage term and reduce your interest.

If, however, you have lots of other higher-priority debts you need to pay off and are just about meeting your existing monthly repayments, then overpaying your mortgage may be a risk and should be at the bottom of your list.

Looking for a mortgage?

Huspy is an online mortgage broker that compares over 500 mortgage options in seconds to help you find the perfect mortgage match. Why not give our online mortgage calculator a try?

Or if you’d prefer, you can speak to one of our in-house mortgage experts for free. We’re not interested in charging you, we just want to help you find your perfect home. Get in touch with our team today.

Written by Huspy Team

Published on 26 July 2021

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