SHOULD you overpay your mortgage? Experts have revealed the pros and cons from one saying “overpayments should be a religion” to another saying “it isn’t a no-brainer for everyone”.
According to Monzo, only 34% of mortgage holders currently make overpayments, with three in 10 of those who do not overpay saying that they don’t do so due to a lack of understanding of the impact of overpayments.
Homeowners can offset the impact of high interest rates and can save tens of thousands of pounds through overpayments on their mortgages – you cut the interest bill and clear the debt sooner.
Some lenders actually allow the overpayments accrued to be used as a payment holiday, should the need arise.
If you have the cash, then it’s a no-brainer, experts say. But they did warn that it is not a no-brainer for everyone, you need to keep enough cash for everyday life and emergency needs.
And you should check with your lender about any restrictions they have in place for overpayments, often 10%.
Experts said you also need to compare the benefits of overpaying on your mortgage against putting that income into savings and investments.
Overpayments should be a religion not a trend
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said she speaks to every one of her clients about overpayments.
She added: “Overpayments should be a religion not a trend, but an informed one though not overpaying for the sake of following the TikTok financial influencers trend. Every extra pound you put into your mortgage reduces capital, which means less interest and potentially years off your term. Over time, that’s not small money that’s tens of thousands saved.
“But it’s not a blind ‘just overpay’. If you drain your liquidity and have no emergency fund, that’s poor planning. And many mortgages have annual limits or early repayment charges you must understand first. The problem isn’t that people don’t overpay, it’s that they don’t fully understand how it works.
“When I arrange a mortgage, overpayments, underpayments and payment holidays are explained in detail. A mortgage shouldn’t just help you buy a house, it should come with a plan to own it faster. Overpayments aren’t dead money because you can potentially do an underpayment or a payment holiday if needed. We need more informed decisions.”
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said everyone should look into overpaying.
He added: “Overpayment kicks the backside out of mortgages. If you can, you should. Check with your lender about any restrictions in place, often 10%, but some lenders are more lenient than others.
“Then round up your payments or make one off lump sums, however you do it, you could save a bucket load in interest over the life of a mortgage.”
Overpayment kicks the backside out of mortgages
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth Ltd, said you need to check with your lender.
He added: “The short answer is yes, if it is affordable from regular income. Overpaying a mortgage can strip years off the term and dramatically reduce the amount of interest paid. Each lender will have slightly different criteria but most will allow 10% overpayments per year.
“Some, such as Nationwide and Santander will actually allow the overpayments accrued to be used as a payment holiday, should the need arise. Nationwide are particularly strong for overpayers – you can overpay 10% of your original loan balance per year – making them a great lender for this strategy.
“Overpayments are usually set up as a standing order, so you are in total control of the amount and regularity, and the lender is not expecting it each month like your regular mortgage payment.”
Louis Mason, Content and Communications Director at London-based Oportfolio Mortgages, said it’s not necessarily good for everyone.
He added: “Overpaying your mortgage can save you money and shorten your loan term because any extra payments reduce the amount of interest you pay over the life of the mortgage and bring you closer to being mortgage-free, whether by regular extra monthly payments or a one-off lump sum.
“However, it isn’t a no-brainer for everyone. Locking too much cash into your property reduces liquidity and flexibility, and if your mortgage has early repayment charges or your money could earn more elsewhere (for example in investments), overpaying isn’t always the best use of funds.
“You can overpay by making regular extra payments above your monthly amount or by putting in lump sums when you have spare cash, just be sure to check your lender’s overpayment allowances and any fees.”
It isn’t a no-brainer for everyone
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, urged caution.
She added: “Overpaying your mortgage is not a no-brainer. It is personal and comes down to risk tolerance, cash flow and peace of mind. The biggest benefit is certainty. You cut the interest bill and clear the debt sooner, which can save thousands. That guaranteed return feels powerful, especially when markets are volatile.
“The downside is flexibility. Once the money is in your mortgage, you cannot easily access it, and you might miss higher long term investment returns. You do not have to choose one or the other. Many people overpay and invest.
“The key question is whether you would still feel secure if investments fell. If not, lean towards overpayments. You can increase your monthly payment or make lump sums from bonuses. The right choice is the one that lets you sleep at night.”
Harry Goodliffe, Director at HTG Mortgages, said it is a smart move for many.
He added: “It’s not a no-brainer, but it can be a really smart move if it suits your situation. The big win is paying less interest and potentially knocking years off your term, which in today’s environment can mean a serious saving and a lot of peace of mind.
“The flip side is access. Once that money’s in the mortgage, you can’t easily access it, no emergency fund, or a lender that caps overpayments, it might not be a priority.
“You can typically do it by adding extra each month, paying in a lump sum, or increasing your direct debit. Very powerful, but only if it doesn’t leave you stretched.”
How long is a piece of a string?
Steven Greenall, Mortgage and Protection Advisor at Rayleigh-based Protect & Lend, said he didn’t agree that overpaying was essential.
He added: “I favour liquidity and investing elsewhere instead of overpaying your mortgage. Once you’ve paid that cash into your mortgage it’s inaccessible.
“Psychologically it may suit people but it’s the cheapest debt you can get so use it to your advantage.”
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said it was up to personal choice.
He added: “How long is a piece of a string? It’s one of those decisions where the mathematical answer doesn’t always match the emotional answer. If you have spare money you could invest it if you felt confident that you’d get a greater return than the rate you’ve borrowed at.
“That’s the mathematical answer but there is a value to the peace of mind gained by reducing your mortgage and so it’s a personal decision.”
Richard Davidson, Mortgage Advisor at onlinemortgageadvisor.co.uk, said you need to weigh up where to put that extra cash.
He added: “The benefits of overpaying your mortgage are clear. You save interest and your mortgage will end sooner. In simple terms, it’s less money to the bank and more in your pocket. The decision has to be a personal one, because it is not good to overpay at the detriment of other spending and savings decisions.
“This is why anyone considering large lump sum payments is advised to seek qualified financial advice. The only real downside is ‘opportunity cost’, in other words overpayment versus ‘something else’.
“Overpaying a mortgage if you have pure excess cash is a no-brainer, but overpaying versus contributing to a pension, children’s education or investments is a decision where you need to weigh up different rates of return, risks, and your individual circumstances, future plans and goals. You can overpay by regular payments, or one-off transfers, and it can be done online now.”
Make sure you still leave yourself a savings pot
Elliott Culley, Director at Hayling Island-based Switch Mortgage Finance, also said you need to weigh up your options.
He added: “Overpaying on your mortgage can significantly reduce the overall interest you will pay on the mortgage. However, before you proceed always compare the benefits of overpaying on your mortgage against putting that income into savings.
“As a general rule, if the interest on the savings account you can get is higher than your interest rate on the mortgage, then the savings will be the better option. It’s also worth noting when you overpay on a mortgage, you can’t take those funds back out if suddenly you need them. So make sure you still leave yourself a savings pot for any unforeseen circumstances.”
Aaron Strutt, Product and Communications Director at London-based Trinity Financial, said only three in 10 people overpay their mortgages.
He added: “Many homeowners like the idea of making overpayments, but they would rather still have access to their cash in the event of a financial emergency. It seems like a good idea to make overpayments on your mortgage when you can, especially if you have an interest-only mortgage, while also boosting your savings or investments.
“You can use the Bank of England’s calculator to work out how much interest you would pay over the mortgage term. Most lenders will let you make one-off or regular overpayments. A limited number of lenders still offer offset mortgages, which remain popular with borrowers seeking to reduce their interest payments while retaining access to lump-sum funds.
“Monzo used its survey of 4,000 UK adults to calculate its findings to show that only 34% of mortgage holders currently make overpayments – 3 in 10 of those who do not overpay stated that they don’t do so due to friction or a lack of understanding of the impact of overpayments.”
