Getting
Started with Your UK Mortgage Overpayments
Once
you have checked on your mortgage's overpayment
policy, you are ready to get started.
To
get maximum benefit from your overpayments, it is
important to plan your approach.
First
of all, decide how you will be overpaying:
Monthly/Weekly/Annually, fixed amount
Monthly/Weekly/Annually, variable amount
Irregular schedule, variable amount
These
are the three main possibilities for overpayment
plans, and you will probably find that one of them
suits you better than the others.
For
example, if you can't afford to make regular
overpayments but you do get occasional bonuses or
overtime payments, you might want to decide to always
pay these into your mortgage, as soon as you get
them.
Alternatively,
you might want to pay just your annual bonus into
your mortgage each year, or you might decide to
make a small overpayment on a fixed weekly or monthly
schedule (the best way to do this is to setup a
standing order from your bank account so that you
won't forget to make the overpayments or accidentally
spend them instead).
Remember
– if your mortgage has its interest
calculated daily, the more often you make overpayments
the better – paying 25% of your monthly overpayment
each week will shorten your mortgage more than making
one overpayment monthly, because the interest will
reduce after each weekly payment – rather
than only reducing once each month.
Once
you are comfortable with the idea of overpayments
and have made some decisions about what you can
afford and when, you might want to plan a little
further ahead – especially if you are determined
to completely pay off your mortgage as early as
possible.
Here
are a few more things to consider.
Fees
& Remortgaging
We
all know that mortgage lenders love nothing more
than fees, and sadly these even apply to good borrowers
who are paying back their loans early.
There
are two types of fees that might
apply to people who are overpaying on their mortgages:
Redemption
Fee – this is the fee you pay after
you have paid off your mortgage – regardless
of whether you have paid it back early. Can vary
considerably in amount but is usually unavoidable.
Early Repayment Fee – as
the name suggests, this fee applies to people who
have paid back their mortgage ahead of schedule.
They vary widely, and may not always exist, especially
if your mortgage is on a lender's standard
variable rate.
If
you have a
fixed rate or tracker
mortgage, however, you will almost certainly
be eligible for early repayment fees if you finish
paying back the mortgage during the fixed or tracker
period.
Although
it is not normally possible to avoid mortgage
redemption fees, early repayment fees can usually
be avoided with a little planning, and this can
be very worthwhile.
1.
If you are remortgaging and are within a few years
of paying off your mortgage, make sure you understand
the different redemption and early repayment fees.
Ask
your mortgage broker to work out whether a mortgage
with a slightly higher interest rate but low/no
fees might save you money.
2. Plan how long you think it will
take you to pay off your mortgage – with regular
overpayments this should be possible.
Use this knowledge to try and make sure you are
not at the beginning of the fixed
or
tracker period of a mortgage when you finish
paying your it off – the repayment fees will
be highest at this point.
3. If you are considering remortgaging,
discuss your plans and calculations with an independent
broker who will be able to compare the fees
and interest rates of a number of different mortgages
and find the cheapest solution for you.
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