- Mortgage overpayments are additional payments made on top of your monthly mortgage payments during the mortgage term
- You can usually overpay your mortgage by up to 10% of the mortgage balance each year
- Making overpayments on top of your monthly payment, chips away at the mortgage and reduces the capital that you owe
- Making overpayments helps you save money on your mortgage by chipping away at the interest on your mortgage
What are mortgage overpayments?
Mortgage overpayments are additional payments on top of your monthly mortgage commitments.
The majority of banks and lenders will typically allow you to overpay 10% of the balance each year.
So when taking out your mortgage, it's important to consider do you want to make more overpayments than 10%. Or even do you want the option to make unlimited overpayments?
By making overpayments on your mortgage, you can reduce your mortgage balance and chip away at the capital you owe.
You can either make regular small overpayments or make one-off payments when you have some spare money.
The benefit of making an overpayment is that you will be directly reducing the balance and retaining more equity in your property.
For example, take a £300,000 mortgage over 25 years at a 5% interest rate.
If you overpay by an extra three pounds a day, you could save around £23,000 in interest alone and pay off your mortgage over two years earlier.
As you can see, you'll be surprised by how much of an impact you can make by making small, regular overpayments.
So this could be something worth looking into if paying off your mortgage faster is a priority for you.