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As a homeowner, it is possible to save on your mortgage repayments, but first you have to take some very important things into consideration. Mortgages have something of an endless - or ‘to the end’ - quality about them, don’t they? Whether or not that’s because the word stem mirrors that of the Latin and Old French word for death, or because they involve a seemingly endless amount of debt, we don’t know. That remains one for the boffins to fight over. The thing we do know is that, very often, homeowners could be saving on what they are currently paying. Sometimes, it is possible to save on mortgage repayments by simply paying the whole thing off. Other times, it’s better to keep dragging payments out, especially when your mortgage supplier imposes hefty repayment penalties. In the case of the latter, it is better to check that your lender allows you to pay more on your mortgage - known as overpaying - penalty free. It’s also possible that there are fixed limits on how much you can overpay. In these situations, it’s good to keep a clear head. Afterall, there is no point in making overpayments to pay off a mortgage faster if it ends up being more expensive than what you originally agreed. When you want to speed up paying, or pay with bigger sums, you could always consider a remortgage plan (more on this elsewhere), if your existing lender won’t budge. For many, though, overpaying mortgages can often be a bit of a no brainer. This is especially true for the moment, when savings rates are at an all time low, with potential savings of £10,000s of interest on mortgage repayments. Other benefits of overpaying include not paying any interest on what you overpay, as well as eating into debt faster, of course. In a world where those savings rates aren’t expected to change anytime soon, overpaying is essentially making the same gain as saving money at your mortgage rate - perhaps three percent, perhaps five. This is currently impossible to find in a savings account, ISA, or on the highstreet. But - and here’s the thing - lenders don’t really want you making repayments. Some are cool with it, and they won’t impose any penalties at all. Others, well, you can expect to be charged depending on a range of criteria, including the amount you want to overpay your mortgage by. Typically the rule is that lenders will let you pay up to 10 percent per year but check; this is not always the case. Others might charge you five percent of any amount that you try and over pay full stop. If you’re wondering why this happens, it’s because in many cases lenders want you to stick with them well after the attractive introductory offer. It’s no good to them if you manage to pay off lots of your mortgage while the rates are in your favour. For that reason, some are inclined to punish any overpayments, while others turn on the thumb screws once you start peaking over the 10 percent limit. If that’s you, what should you do with savings? The sensible thing would be to keep adding to them while continuing to pay your mortgage at the regular monthly repayment. Interest rates are still low, and look unlikely to rise anytime soon. By adding to your savings, you can build up a cushion to quickly cut down your mortgage with a lump sum in the event that interest rates rise in the future. That said, overpaying is, in most cases the winning option. Increasing payments - in some cases even paying the fines - and wiping off mortgage debt stops the accrual of interest in its tracks and can save huge sums of money. Just make sure to check with your lender, and maybe an adviser, about whether or not the pros/cons balance out in a way that works well for you. Track your remortgage online at Mortgage Watcher
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