According to a survey, 56% of homeowners with a mortgage never get around to overpaying. The data there is quite interesting, as mortgage applicants usually start off their journey with the intention of overpaying their mortgage.
Every homeowner, whether a First Time Buyer in Manchester, Home Mover in Manchester or going for a Remortgage in Manchester, should know that overpaying, even if it’s not by a lot, can really make a difference in the amount of interest you pay back over your mortgage term. The earlier you start overpaying, the better the effects of your extra payments.
The survey, undertaken by Compare The Market, suggests that Homeowners may not be able to afford these extra payments. It could just be that life gets in the way. Of course, overpaying is the ideal thing to do when you take out a mortgage, but in reality, there’s always something new and flashy we’d rather spend our money on.
The issue seems more likely to just be remembering to overpay your mortgage. It’s not something we imagine comes into your mind too often either, besides maybe when your mortgage term is almost up.
So, if this sounds like you and you’re maybe hoping to overpay in order to maybe retire early, what should you do? Our recommendation is to set up a standing order that is payable to your lender each month. Set it up to go out on the same day as your regular mortgage payments.
For example, say your monthly mortgage payment is £450 per month and goes out on the 2nd of each month. You are able to afford an extra £85 per month and want to put that towards your mortgage payments. Set up a standing order of £85 to go out to your lender on the 2nd of each month too.
One of the perks of this, is your mortgage payments will then total at £535 and because it’s going out as a regular payment, this will feel and later become the norm for you. Another perk is that whereas a direct debit is controlled by the receiver, standing orders are controlled by the payer. Have a financial emergency and don’t want it to go out this month? Log into your online banking and cancel the payment.
Whilst it would be a shame to have to stop overpaying, at least you’ll be in receipt of those benefits thus far. Depending on the lender, you may even be allowed to arrange reduced payments or take a “payment holiday” if you’ve been overpaying for some time. It’s important to check with lenders though if you’re looking to do this, otherwise it could negatively affect your credit report.
Overpaying is a great habit to have but it’s not obligatory. If you don’t feel the need to, you don’t have to. That being said, shaving off a year or two off your mortgage term will be something you’ll benefit from greatly.