Almost half of homeowners overpaid their mortgage last year, perhaps in part due to poor interest rates on savings accounts.
As many as seven in 10 under-25s paid off a higher portion of their loan than previously arranged, according to a survey from consumer group Which?.
More than 3,500 homeowners with mortgages were surveyed and findings showed that people in London and the West Midlands were the most likely to be making overpayments on their mortgages, while Scotland had the lowest level of overpayments.
Paying off a mortgage earlier than originally agreed is so popular with homeowners that a quarter are paying extra towards their mortgage on a monthly basis, with overpayments from June 2017 to July 2018 averaging at 14.3%.
The rise in 30 - 35-year mortgages
In addition to poor interest rates tempting homeowners to pay off their mortgage early, the growth in 30 and 35 year mortgages could also be partly responsible.
The number of first-time-buyers taking out a 31 to 35 year mortgage has doubled in the last ten years, with many buyers opting for these long term mortgages in a bid to keep their living costs as low as possible.
Although spreading a mortgage over a longer period can reduce monthly mortgage repayments, it tends to result in a greater amount of interest being paid over the entire mortgage term.
For this reason, many buyers are opting for mortgages of 30 years or above but overpaying when possible. This can offer homeowners the best of both worlds: the freedom of low mortgage repayments when finances are tight and the flexibility of overpaying during more positive months.
The benefits of overpaying your mortgage
Overpaying your mortgage can have numerous benefits. From enabling you to become mortgage debt free sooner to saving you thousands of pounds in interest over the course of your mortgage, it can be a smart financial move for many homeowners.
Overpaying can also reduce the likelihood that you fall into negative equity should house prices fall in your area.
Before overpaying, it’s wise to ensure you have a healthy emergency fund to hand so that you can cover yourself in the event of financial emergencies such as a broken boiler or car issues.
If you have any high interest debts on credit cards or personal loans, it’s often wise to tackle these before overpaying your mortgage.
How to make an overpayment
If you’d like to make overpayments on your mortgage, get in touch with your lender to find out what your options are. Often, whether you’d like to make a one-off overpayment or regular monthly overpayments, this can be arranged over the phone within a matter of minutes.
Your lender will have a set of terms and conditions relating to overpayments and there may be restrictions on the amount you can overpay each year without incurring a fee. For example, most lenders will let you overpay by up to 10% of your total loan amount annually without charging you any penalties. These rules can differ between lenders so it’s wise to check first.