Are you paying too much for your mortgage right now? Are you not sure whether you’re overpaying for your mortgage and simply want to see if there are better offers available?

Fear not… our mortgage overpayment calculator is the perfect tool for you. We compare all the mortgages on the market, gathering the latest and most up to date rates. All you have to do is enter some basic information about your circumstances and all the available mortgages will be returned to you. You can then compare these offers with your existing mortgage and see whether you can save any money by switching to a new mortgage.

Got a tracker mortgage? Then it is likely your monthly repayments will have reduced immensely over the last year. That is due to the Bank of England base rate in March, being reduced to a record low of 0.5%, and it is thought that it is very doubtful this rate will rise in the foreseeable future.

So this could be an ideal opportunity to begin paying extra in the form of overpayments saving a tremendous amount of interest charges. So here are some pointers as to how to overpay your mortgage.

Taking the type of mortgage in place there are a variety of choices that mortgage lenders have on offer.

For example a borrower might be given a Christmas bonus and could opt for depositing the full amount or a slice of this bonus as a contribution to their mortgage.

A borrower can also consider making additional payments on a monthly or weekly basis should they find they can bear an extra expense. This they can do this by setting up a standing order on a recurrent arrangement, ensuring that they do not overlook a payment or spend the money in error.

It is also possible to make overpayments at times suitable, i.e. when a borrower has extra money to dispose of. This would be advantages to people who can’t make repeated overpayments but when periodically they receive a bonus or overtime. Some banks allow this.

Many types of mortgages permit over payment up to a specified amount, normally a set percentage of what is owed or an upper limit each month or year.

Having set up which kind of overpayments are allowed by a lender, then overpayment of a mortgage becomes very easy. All that is required is the account number and sort code for the mortgage where cash, cheque or payments online can be made.

Benefits of overpayments

The benefits of overpayment of a mortgage can be enormously rewarding. The true cost of a mortgage is centered around the interest that is paid and can be really draining. Take a standard mortgage of £180,000 with a term of 25 years at 6% this will in reality result in a cost of around £348,000, meaning a massive £168,000 of interest being paid throughout the period of the mortgage.

So a reduction in the owing capital on a mortgage would bring down the interest a borrower would have to pay. Hence overpayments can cause a great result.

With only an increase in payments of say £20 a month a whole year removed from the mortgage with a massive saving of £8,000 in the future. So imagine what an additional £100 per month could result in a huge £31,000! Wow.

Can paying off a mortgage be more advantageous than saving?

Well the answer to this is absolutely especially from a financial point of view. As mentioned about if a borrower were to overpay by £100 a month then this could result in the huge saving of £31,000, where as if a borrower were to put a £ 100 a month into a savings account with a interest rate giving 3.2% they would only realize £10,665 assuming they are taxed at the basic rate. From this illustration it is obvious that overpayment is far more advantageous than putting the money away into a savings account.

At what time should overpayment be made?

If an overpayment is to have an influence on a mortgage then it is best to plumb for interest calculated daily rather than annually. By taking this option every overpayment made will impact straightaway on the amount of interest charged. Hence the more regular the daily interest is, the more regular every overpayment is caused to decrease with immediate effect.

A mortgage that is worked out yearly is not popular these days, it requires a borrower working out best time to make an overpayment. With interest calculated yearly on payments made throughout the year there will be no results on interest up to the time when it is recalculated when the year has ended. Therefore it is wise to discover when recalculation is undertaken and in the meantime place the overpayments into an account offering a high rate of interest and then make one large payment when the year is up.

How to access money that is tied up in the home?

By making overpayments a borrower’s money is secured in their home meaning that they cannot use this money should they need it. It is possible to take on a mortgage that has variable characteristics permitting overpayment but also offering a way to borrow back but without any forefeit.

Nevertheless some mortgages do not have pullout clauses so it would be prudent to establish a reserves for those unexpected expenses before making any overpayments. This reserve would be a fall back if a borrowers circumstances altered, for example loss of job.

Is it possible to make underpayments?

One of the advantages of overpayment is that a borrower can pay off their mortgage in a shorter period of time and allowing a sizeable amount of money saved. Another advantage is that if a borrower overpays for sometime a lender can in the future permit the borrower to take a ‘payment holiday’ by making underpayments.

Sometimes it is possible that a borrower is in a situation of financial strain and would like to lower their monthly payments or even halt their payments without the worry of falling behind in their mortgage program, this is where underpayment can be of great use and should be talked over with the lender as terms can alter from lender to lender.

To find out more about mortgage overpayment then why not use our mortgage overpayment calculator.