While the mortgage market remains volatile and fluctuating interest rates prevail, clearing away a mortgage loan, fast, has been a top priority for many. Overpaying the mortgage is an effective way to do this, and even making small, regular overpayments can have a large and lasting impact, experts have said.
The first thing to know, Alison Pallett from the Nottingham Building Society said, is that there are two ways to overpay a mortgage; a one-off lump sum or regular overpayments.
Ms Pallett elaborated: “A one-off lump sum payment can either reduce your mortgage term – saving you on long-term interest – or reduce your monthly payments afterwards.”
“Regular overpayments can be more flexible, and you can choose to make them or not at any time.”
However, before moving on to establish the most appropriate and effective savings tactic to do it, it’s important people check that their mortgage lender accepts it or if there are any restrictions.
Ms Pallett said: “You may only be able to pay 10 percent of your outstanding mortgage each year without incurring a fee – so make sure you ask first.”
Following this, Ms Pallett said: “A good place to start is tackling what is often called ‘emotional spending’ – those ‘little treats’ that you don’t actually need. There are a few ways to do this.
“For example, setting yourself a budget which includes an allowance so you can still treat yourself from time to time. Taking time when you do spend can also help; in most cases, what you’re planning to buy will most likely be there tomorrow, so take 24 hours to think about it first.
“My favourite tip for facilitating this process is automation; setting up processes to make these regular overpayments infallible – and free from the temptation of spending the money elsewhere.”
Mr Ingram said that this can be as simple as setting up a standing order to make a small extra payment to the lender each payday, so the money leaves the person’s account as soon as it arrives.
He added: “Even if it’s just £20 or £50 each month, this can add up to making an extra mortgage payment each year, with a dramatic compounding effect over the lifetime of the mortgage.”