Overpaying on your mortgage, either with a lump sum or by making larger monthly payments may sometimes have the effect of reducing the total amount of interest you have to pay on your loan, while also helping you to pay off your mortgage loan sooner. But is it worth doing or would you be better putting your money away in a savings account? Here we take a look at the "what, why and how" of mortgage overpayments.
WHAT is a mortgage overpayment?
Your lender will set your monthly repayment amount when you take out your mortgage loan and will notify you of any interest rate changes affecting your monthly payments or when your fixed-rate deal comes to an end. If your financial situation allows, you can overpay on your mortgage by making:
- Regular additional overpayments: Simply increase your fixed monthly amount, to reduce your overall balance. You may be able to target these overpayments to a particular part of your loan.
- Lump sum overpayments: Payments made outside of your usual monthly amount. Lump sum payments may result in automatic recalculation of your monthly repayment.
The type of overpayment you make will depend both on your individual circumstances and on the terms of your mortgage deal; what is best for one person is not necessarily best for another.
WHY overpayment may work for you
Overpayment can reduce the size of your mortgage balance while also reducing the amount of interest you owe. This means that you could have less to pay in the future and may have a greater chance of repaying your mortgage in full earlier than you had originally planned.
HOW do I overpay with The Cambridge
As a customer of The Cambridge, you can overpay on your mortgage by bank transfer, standing order, in branch or over the phone with a debit card.
Standing order is the easiest method for most customers as it allows you to adjust your overpayment in line with your needs and goals.
For electronic payments into your account, use the following details:
Barclays Bank PLC
PO Box 2, 15 Benet Street
Cambridge, CB2 3PZ
Sort code: 20-17-55
Account Number: 40338346
Reference: (this is your mortgage account number)
Please note that if your Reference field is not completed, payments may not reach your account.
Our IBAN No. is: GB30BARC40338346201755
And some other things to think about
What if I use the money to top up my savings rather than overpay on my mortgage?
Because savings rates are currently low, the savings that overpayments might help you achieve on your mortgage interest might amount to more than you could potentially earn in savings interest. However, this depends on your mortgage terms, your savings accounts, and your individual circumstances, you should ensure that you seek advice from a qualified financial adviser before making any decision regarding whether to save or overpay.
Consider any restrictions
Your mortgage deal may have certain restrictions on the maximum amount you can overpay without incurring an Early Repayment Charge (ERC). However, most deals will allow you to repay a fixed percentage of your original mortgage balance each year without incurring any charge.
The Cambridge allows overpayments on all its mortgage products. Because we charge daily interest on mortgage accounts, overpayments reduce the amount of interest you owe.
The amount you can overpay per year is set by the terms of your product. Depending on your individual mortgage, you may be able to overpay up to 10% per year or be able to make unlimited overpayments. If you would like to find out how much you are able to pay you should check the terms and conditions of your mortgage or if your mortgage is with us, get in touch with our Customer Contact Team for more information.
Consider the flexibility
Mortgage overpayments can give you flexibility with your account. For example, if you make regular overpayments you could repay your mortgage at an earlier date (reducing your term) or you can reduce the burden of your mortgage in the future by choosing to pay more now and then making lower monthly payments later on. This can be useful if you know your income is likely to go down in the future, perhaps when one person takes a work break to have children for example.
Overpayments can give you options. For example, with some lenders you may be able to borrow the money back or have a payment holiday when your situation changes.
With The Cambridge if you have overpaid, you can apply to borrow some of the money back or to take a payment holiday when you revert to our Standard Variable Rate or your mortgage is on our Variable Home Loan Rate. This may give you greater flexibility and access to funds in the future.
Keep within your overpayment allowance
Depending on the terms of your mortgage product, you may have a limit on how much you can overpay each year. If you would like to check how much you can repay or have already overpaid and would like to find out how much allowance you have remaining, you should get in touch with our Customer Contact Centre for more information about your account.
Overpaying is not always straightforward
Some mortgage accounts are made up of more than one part. For Cambridge Building Society Mortgages, the following apply:
- If the interest rates are different on different parts of your mortgage deal, the part with the highest interest rate will be reduced.
- If interest rates are the same and there is an interest only part, the interest only part will be reduced.
- If interest rates and repayment types are the same, the part with the largest balance will be reduced
In the event that you do not want your overpayment to follow the above-mentioned standard payment allocations, you will need to make a minimum payment of £1,000.00 and specify your requirements.
If your overpayment fully repays a part of your mortgage, this part will be closed. Any overpayments made to the part which has been closed will not be available to borrow back at a later date.
Making the decision
Knowing what will work best for you in the long run is not always easy. But there is help and advice available: try MoneySavingExpert and Money Advice Service for free guidance. Ultimately, you should seek professional financial advice before making any decisions.
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