Should I overpay my mortgage?

Can you make additional payments off your mortgage?

Over the last few months the mortgage market has had some fast paced changes which we have tried to keep you aware of.  As we enter the new year we thought we would share some information with you to help reduce your mortgage quicker that some customers are unaware of.

Most mortgages allows you to make additional payments, this depends on your mortgage company and varies between 5%, 10% or even 20% of the balance or original loan amount each year, by doing this it reduces the amount of interest you would pay off and can take years off your term.

Lets take for example a £150,000 repayment mortgage over 25 years on a rate of 2.29% fixed for the first two years then a rate of 5.64% for the rest of the term.  Your total to pay would be £267,573 over the term, if you had the ability to make your 10% additional payments you could pay an additional £15,000 off your mortgage during year 1 and 10% of the balance remaining each and every year.  So, if you made £1250 per month additional payment to your normal monthly payment you would pay your mortgage off 17 years and 6 months early saving £93,090.

 

Now we appreciate that is probably not a very realistic additional payment for most people so lets look at what an additional £150 monthly payment looks like; This would clear your mortgage 5 years 9 months early and save you £33,187.

These figures all change depending on interest rates and fees and if your lender will allow additional monthly payment or by a lump sum payment but you can see from the illustrations how a small additional payment can significantly decrease the term of your mortgage and the amount you would pay.  This can also help with those coming off very low fixed interest rates in the next few years, if you can make these additional payments, it would reduce the loan amount you require when you start to look at a remortgage.  Reducing the amount, you will require will in turn reduce the monthly payments for example £150,000 over 25 years with a rate of 2.29% would be a monthly payment of £657.17, 4.29% would be £815.97pm and 6.29% would be £993.22pm but if you reduce the balance then those committed monthly repayments start to reduce; 

 If you have any questions on this or anything mortgage related then please call us on 01275 244360 for a no obligation quote or email us at info@LibertyMoney.co.uk