Best Buy Mortgages Glossary - Overpayment
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Overpayment
You make an overpayment when you pay more each month to your
mortgage lender than the stipulated required monthly repayment.
Do this on a regular basis and your mortgage will be repaid
ahead of schedule, before the end of the mortgage term and you
will have saved yourself a substantial sum of money in interest
charges. For example, the Halifax suggests that paying £80 a
month extra on a typical £110,000 mortgage would cut the term
from 25 years to just 20.
In order to get the most out of overpayments you need a mortgage
offering daily interest calculations. This means that every
payment you make will affect the amount of interest charged to
your account. Making an overpayment will reduce the balance on
which interest is charged. If, on the other hand, you make an
underpayment or miss a payment, this will increase the balance
on which interest is charged.
A variety of flexible mortgage deals are available allowing a
mix of overpayment and underpayment options that may include a
drawdown facility of the amount you have overpaid. However, many
lenders now allow unlimited overpayments on standard
variable-rate mortgages and only limit them on special-offer
fixed-rate mortgages. While a lender may not advertise a deal as
having an overpayment facility, if there is no early repayment
charge you may overpay by as much as you want.
See Also: Mortgage Rates,
Mortgage
Calculators, Mortgage
Quotes
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