Making extra payments on your mortgage can save you money

January 7, 2016 by Brendan

Advice & Tips

For a number of people who have a little bit of spare cash, paying extra off the mortgage gives far better returns than holding it in a savings account. Making overpayments on your mortgage will reduce the amount owing considerably, whilst reducing the mortgage term, often by years.

Experts recommend that while interest rates are low, paying a little extra can be beneficial. You could save more money on your mortgage than you would earn in a savings account. For instance, if you pay 4% interest on your mortgage, you would need to find a savings account which pays 5% interest to get the same benefit.

Paying more will mean that you pay off the loan much quicker, with the benefits increasing if you overpay more. Once you have built up the equity in your home to a considerable amount, you will attract more favourable interest rates in the future. You can overpay on a mortgage at any time, although some lenders may penalise you and charge a penalty fee. Check with the mortgage provider before making any extra payments. A CeMAP qualified mortgage adviser will also be able to help you to make a decision to repay.

Prior to making overpayments, consider whether you have sufficient money put aside to cover any emergencies, like faulty plumbing or a leaking roof. If you have a little extra each month, you can either make an extra payment every month or save it and make one extra payment at year end.