No matter whether you are a First Time Buyer in Birmingham, Home Mover in Birmingham or looking at your options for Remortgaging in Birmingham, home buyers and homeowners should know that overpaying, even if you only do so by a little bit, can really make a difference in the amount of interest you pay back over the duration of your mortgage term. The earlier you start overpaying, the quicker you can start reaping the rewards from doing this.
Whether or not you can do this, all comes down to the lender’s preference. You may find that your lender will allow overpayments on a tracker mortgage or a flexible offset mortgage. This is why it’s important to check with your lender.
It has been suggested in the past, that homeowners may not be able to afford making any extra payments. In these cases, it may very well be that life just gets in the way. The concept of overpaying sounds ideal when you take out a mortgage, but generally there’s always something new and flashy we’d rather be having a cash splurge on.
We find that it’s more just an issue with remembering to overpay your mortgage. It’s probably not something that would come into your mind too often either, apart from maybe when your mortgage term is due to finish.
If this sounds like your personal situation and you’re maybe hoping to overpay for the purpose of say, retiring early, what should you do? We would recommend that you 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 standard mortgage payments.
So as an example, say your monthly mortgage payment is £450 per month and goes out on the second of each month. Then let’s say you are able to afford an extra £85 per month and are wanting to put that towards your mortgage payments. You should set up a standing order of £85 to go out to your lender on the 2nd of each month too.
A benefit of this, is your mortgage payments will then total at £535 and because it’s going out as a regular payment, this outgoing will become the norm for you. Another perk is that where something like a direct debit is controlled by the receiver, standing orders are controlled by the payer. If you’re having a financial crisis this month and want to go out, just log into your online banking and cancel the outgoing payment.
Whilst it would be a shame for you to stop overpaying, at least you’ll be in receipt of those benefits up until that point. Depending on the lender you have gone with, you may even be allowed to arrange reduced payments or take a “payment holiday” if you’ve been overpaying for quite a while. You must check with your lender though, as if you’re looking to do this and don’t ask, it could negatively affect your credit report.
Overpaying can be great, but it’s not obligatory. If you don’t feel the need to do so, you don’t have to, simple as that. That being said, knocking off a year or two from your mortgage term will be something you’ll benefit from greatly in the long run.