Almost half (46%) of UK homeowners make overpayments on their own mortgage previously year, according to Which? research.
The Which survey found that younger homeowners were probably to possess overpaid their mortgage, with seven in 10 (69% of) 18-24 year olds having made a minumum of one overpayment.
Here, we take a look at how mortgage overpayments work and whether overpaying is the right option for you in 2022.
Mortgage overpayments within the UK
When we surveyed over 3,500 homeowners with mortgages in June 2022, 46% of respondents said they’d paid much more of their mortgage off than they had to previously year.
Young homeowners (those aged 18-24) were probably to possess made a mortgage overpayment, with a whopping 69% of respondents in this age range paying off more than the amount necessary for their lender.
Homeowners aged 25-34 were the second-most prone to overpay their mortgage, with 52% paying extra to their lender.
Geographically speaking, mortgage overpayments were most typical among Londoners (60%), accompanied by the West Midlands (52%) and also the South East (48%).
Homeowners in Scotland were the least likely to overpay on their own mortgage, with only 38% saying they'd done this.
The map below shows the percentage of house owners who designed a mortgage overpayment in every region.
What is really a mortgage overpayment?
When calculating how much you can borrow for any property, your mortgage company takes a quantity of factors into account including your income, expenditure and their own affordability criteria.
Your repayments will depend on the size of your loan, the interest rate and the term (the time of your time you’ll spend the money for loan go back over).
Mortgage overpayments are, as the name suggests, when you pay more towards your mortgage compared to amount originally set by your lender.
The aim of overpaying is to clear your mortgage debt faster by reducing the size of your loan and for that reason cutting the amount of interest you’ll have to pay back. You are able to usually only pay back a certain amount per year (often 10%) before incurring penalties.
A mortgage overpayment could be produced in the following ways:
Why make mortgage overpayments?
There are several advantages to overpaying your mortgage including:
1. Paying down your mortgage faster
The amount you overpay your mortgage by goes towards repaying the main city of the loan, and therefore it will lead you a shorter period to repay your financial troubles.
2. Lowering the interest you pay
By reducing the size of the loan, additionally you cut the quantity of interest you’ll need to pay in your loan amount.
3. Increasing payment flexibility
Overpaying your mortgage puts you in front of your payment schedule, which could give you the flexibility of underpaying further down the line. Not every lenders allows this, though, so it’s important to look into the lender’s overpayment policy before selecting an offer.
Are mortgage overpayments best for you?
Overpaying your mortgage is definitely an efficient way of clearing your mortgage debt faster. Before overpaying, you’ll need to check that your lender will allow you to pay extra without incurring a problem, in addition to whether you will find any limits on how much you are able to overpay by (many lenders cap overpayments at 10% per year).
It’s worth noting that mortgage overpayments may not be ideal for everyone as well as your ability to make sure they are is determined by your financial circumstances. If you have any non-mortgage debts like overdrafts, personal loans or credit debt, for example, it could easier to eliminate them first as they tend to have higher rates of interest, which makes them more costly.
David Blake, Which? mortgage expert, said: ‘Mortgage overpayments are a good way to pay off your mortgage faster. Not every mortgage products permit you to make overpayments so it’s really important that you look into the relation to the loan first.
‘It’s also vital that you do the sums before making an overpayment. With many providers, once you make an overpayment you can't obtain the money-back and the lender will still expect you to help make your full payments each month continuing to move forward.
‘So if you’re prone to need access to emergency cash, it might be better to stick to your original repayment schedule.’
Alternatives to mortgage overpayments
Overpaying isn’t your best option if you wish to clear your mortgage debt earlier than originally planned. You might consider:
Shortening your mortgage term
It may be easy to ask your mortgage provider to shorten your mortgage term by a few years, reducing the interest you pay over time. This is likely to increase your monthly repayments so it’s important to ensure that you are able to afford the new amount.
Remortgaging to some cheaper deal
If the introductory deal period in your mortgage is due an end, especially if it’s already ended, you may be in a position to switch to a cheaper product having a shorter-term. Be sure to do the sums before switching, though, as remortgaging may trigger an early repayment fee on your current mortgage.
Switching to an offset mortgage
An offset mortgage works by linking one or more bank or savings accounts to your mortgage. All of the money you have in the bank will be taken off your mortgage balance before interest rates are calculated. Offset mortgages allow you to overpay your mortgage and pay it back early too.