IS IT BETTER TO MAKE MORTGAGE OVERPAYMENTS OR DECREASE THE TERM?
There is no denying the pandemic has impacted people and households in many ways. If you are considering mortgage overpayments, this might be a smart time. For the households who have done well financially during the pandemic, there is still a need for support.
If people have been able to carry on working or have been even busier, they might have found they have very little to spend their money on. Entertainment options have been minimal, travel options have been non-existent and people might have reduced their expenditure on clothes and beauty products. In some households, people will have additional money, and it is sensible to look for ways to use this money effectively.
For example, if you have a mortgage, you might be considering making mortgage overpayments or looking for ways to decrease the term of your mortgage. So which option is most suitable for you? Principally, these actions result in the same outcome and are both of benefit to mortgage holders. The outcome sees a reduction in the overall amount of interest paid on the mortgage, and the length of time the mortgage runs for is shorter.
HERE’S AN EXAMPLE:
Mortgage Balance: £130,000
Remaining Term: 30 years
Normal monthly payment: £500
Using this example, you would repay £500 per month. If you regularly overpay £200, you’d be mortgage free 10 years and 10 months earlier, saving £19,211 in interest alone.
Knowing that you are saving money in the long term and not having your mortgage hanging over you is liberating. You also don’t need a massive amount of additional money each month to make a significant dent in the overall cost of your mortgage. So, while they are both excellent options, overpaying your mortgage is likely to be the preferred option because it is more flexible.
If your situation changes again, or something arises, you can stop, reduce and restart overpayments at any time. However, if you commit to paying off your mortgage in a shorter time frame, you don’t have this flexibility, which might be an issue if your circumstances change. Of course, you must make sure you can make overpayments with your mortgage.
Unfortunately, not every lender allows this activity. Therefore, it is best to speak with a professional who knows the industry and advise you on the terms and conditions of your mortgage.
If this is something that you’d like to explore further, give us a call at Mortgage Solutions Belfast 📞 02890 642000.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.