Should you overpay your mortgage?

Andy Webb

It can seem intimidating to have more money going out each month—but paying more now may cost you less overall. Our money expert Andy Webb is on hand with everything you need to know.

Many homeowners are paying less each month on their mortgage than ever before, thanks to low-interest rates. With smaller repayments, you can have a little extra in your pocket each month. Yet with savings rates also incredibly low, there may be better ways of using that cash than simply leaving it in your bank.

Overpaying your mortgage is one way of getting more from the extra money, yet comparison site found only two in five homeowners have done it.

The research revealed the biggest barrier was homeowners didn’t believe they could afford extra payments—despite spending an average of £167 every month on luxuries.

Read more: Should I extend my mortgage?


The benefits of overpaying your mortgage

should I overpay my mortgage

Overpaying on your mortgage will reduce the total amount you’ll pay in interest and could take years off the length of the mortgage.

Adding ten per cent to the average monthly mortgage would be just £59 according to comparethemarket, while it would save £1,870 in interest and reduce the mortgage term by one year and four months.

Another benefit is you’ll also have a smaller mortgage when interest rates—and your monthly repayments—go up.

Read more: What your mortgage provider won't tell you


Is there a better option?

Before you start throwing cash at your mortgage—stop! It might not be the best option. Here are three alternatives to consider first:

  • Pay off more expensive debts
    If you’ve got debts elsewhere, say on a credit card or unsecured loan, the interest rate you’re being charged is likely to be significantly higher than the one on your mortgage. It’s better to clear those debts first—and avoid building them up again—before you overpay your mortgage.
  • Put it in a pension
    If you don’t have a pension, consider starting one and putting spare cash in there. The earlier you start, the more money you’ll have available when you retire. If you do have one, see if it’s worth paying in more.
  • Build a savings buffer
    If something were to go wrong—you could lose your job or be ill to work—do you have the funds available to keep you going for a while? The same goes for smaller unexpected costs such as fixing the roof, or replacing a washing machine. Can you do this without emergency loans or credit cards? If the answer to either is no, you need to consider if overpaying is the right thing. Once you’ve put your money in the mortgage it’s not usually easy to access it again. This means it’s worth building up a savings buffer—even if the rates you get aren’t great. 

Read more: Understanding different mortgage types


How to overpay your mortgage

how to overpay your mortgage

If you’re ok to overpay, and the money isn’t better off elsewhere, take a look at your budgets to work out much you can afford to add each month. 

Before making an overpayment, you need to check if your mortgage will let you overpay. Some have annual limits, while others have penalties for doing it—if you are allowed at all.

You also need to time it right. Find out if you are charged interest daily or annually. If daily, you can do it anytime. If annually you need to time it so the overpayment counts for the whole year.


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