Stop! Start overpaying your mortgage with your savings
You may have heard some people talk about overpaying their mortgage – but what does that mean? As a renter, I could probably afford to overpay on a mortgage if I had one due to the high cost of renting. But would it be worth it?
Because you’re paying your lender off more quickly, the interest you owe on your mortgage also reduces. Over the long term, this will probably have a dramatic effect on your finances as well as reducing your mortgage term. Of course, there’s the added bonus that the more of the mortgage you pay, the more of your home you actually own. If you ever want to remortgage, this equity is likely to give you access to the best rate deals.
Because the base rate has fallen so dramatically in recent years, many borrowers have been able to overpay simply by keeping up their usual monthly mortgage payment.
So, in general overpaying on your mortgage with any savings you may have is a great way to use that money. However there is one glaringly obvious downside – if you use your savings to overpay your mortgage, you can’t get that money back. So if you were ever to need savings in the future, you wouldn’t have the option to use the money you had paid to your mortgage.
Some mortgage lenders will actually let you borrow back the money you have overpaid or make under payments providing you have an overpayment buffer – but make sure you check this thoroughly before considering your overpayments.
In summary, I think it’s best to stick to one rule – only overpay what you can afford.