Are you in the fortunate position of being able to make overpayments to your remortgage?
With savings rates so feeble right now, overpaying on your remortgage can make perfect sense.
Given the big interest rate savings you could make, it might seem a no-brainer.
But before you jump, you should always check the small print of your remortgage agreement. Especially take note of any repayment penalties.
We’ll give you more details on this below. If you’re unsure what yours are, we’d always advise consulting a mortgage advisor or your lender.
Making Remortgage Overpayments has Three Big Advantages
- You’ll be free of your remortgage sooner
- It should reduce the amount of interest you have to pay on your remortgage
- It can give you increased flexibility to pay more when you can
You can make remortgage overpayments in one of two ways:
- Make a one-off lump sum payment
- Alter your monthly repayments so that they’re higher than the agreed amount
Be aware though that the extra amount you overpay will eat into your outstanding mortgage itself, not the interest you owe.
But it will mean you can shorten the time you’re footing the bill for that interest. You’ll also be paying it on a smaller outstanding sum.
What Restrictions should You Know about with Overpayments?
Not all lenders allow overpayments and some actually discourage them.
Mortgage lenders make money by charging interest. If you overpay, they’ll earn less interest. Some charge penalty fees to deter you.
Most lenders will allow you, though, to overpay 10% of your mortgage balance each year. This is if you’re still in your introductory fixed, tracker or discount period.
If you’re on your lender’s Standard Variable Rate, there are normally no overpayment restrictions.
The amount you could have to pay as a penalty depends on your mortgage deal.
Many lenders charge between 1% and 5% of the amount overpaid. This fee will normally be reduced though the nearer you are to the end of the fixed or discount period.
Get your Remortgage Overpayment Timing Right
This is an important consideration to bear in mind. When does your lender calculate your interest? Most now do it daily. But some lenders still work out interest quarterly or yearly.
If your lender calculates your interest daily, you don’t need to worry. You benefit the next day, so sooner is always better when it comes to overpayments. But if you’re charged annually, make sure you pay your sum in before the charge date.
If not, your remortgage overpayments will only count to reduce the interest you pay AFTER the calculation gets made. Put it in at the wrong time and you’ll miss the boat.
Do you need help from a remortgaging advisor who’ll sit down with you to answer all of your questions and walk you through the process? To have an informal talk about your options, we’ll give you personalised, impartial advice on your remortgage if you would like to contact us here.