Mortgage payments are monthly instalments that you pay the mortgage lender towards repayment of your property loan. Very few of us can afford to buy a home without a loan (unless you happen to be fabulously wealthy) and mortgage loans help you buy a home.
‘Overpaying’ your mortgage means that you pay in excess of the mortgage amount that you were originally supposed to pay. For example, your monthly mortgage payment could be £500. Now let’s say you have received a salary hike or switched to a better job. You now decide to pay £700 per month as your mortgage amount. This is called overpayment of mortgage.
Whilst you might be aware of the advantages of making improvements to add value to your home, what are the advantages of overpaying your mortgage and is it really worth doing?
You will have full and clear property ownership earlier than anticipated
Owning your property free and clear means that you are now free to sell the property if you want to. The property may have risen in value and you may be now interested in investing in a different property. Overpaying a mortgage helps you exercise more control over your property.
Your income is now free of mortgage deductions
In these difficult days of inflation, expenses and spiralling fuel bills, it can be challenging to manage with a depleted salary. Mortgage payments come around relentlessly every month and can eat away a sizable chunk of your salary. If you have children ready to join college or an elder who needs care, a reduced salary may not be adequate to meet your household expenses.
You can plan the next financial move
Once your mortgage is paid off, you can now plan how to utilise the extra income. Choosing to invest it is a good way to develop multiple passive streams.
You are perceived as a good risk by lenders
If you are thinking of applying for other loans, you stand a much higher chance of approval as you have repaid a previous loan in full (and before the deadline).
Overpaying is a useful way of using extra income
Usually, when we earn extra income or have spare money, we might end up wasting it or spending it on frivolous things. Using it towards overpayment is a useful way of directing extra income. Do look out for the small print however. It’s important to check with your lender if overpayment is a viable option. If you overpay beyond a recommended limit, you may attract what is called ‘ERC’; Early Repayment Charges. Always check the details with your lender to ensure that your good intentions don’t go to waste.