Now that the Bank of England base rates are at their lowest rate of 0.25%, interest rates on savings accounts are generally very low. This may mean that you are paying more interest on your mortgage debt than you are receiving on any savings you have. Making overpayments on your mortgage could give you a greater return for your money, as you can save thousands and shorten the term of your mortgage.
Although a mortgage is usually the biggest debt a person will have, it may not be the most expensive. Pay off other debts, like credit card debt, which will probably have a higher rate of interest, before you overpay on your mortgage.
If your lender allows overpayments, don’t ask them to alter all future monthly payments, as this won’t shorten the term. Make overpayments in addition to your fixed monthly repayment so that the term is shortened. However, don’t permanently reduce your mortgage term as it may not be possible to alter it if you find yourself in financial difficulty.
Although making overpayments on your mortgage is a good idea and can reduce the interest paid, make sure you have an emergency fund available which is sufficient to pay household bills for at least three months. If you lose your job you won’t be able to claim back the overpayments made, so make sure you have a savings pot to rely on.
Securing a cheaper mortgage should always be a priority with home owners, so it’s worthwhile seeking advice from a mortgage adviser before making overpayments, as they have undertaken the CeMAP course.