Here at Cailean Mortgages, we’re sometimes asked if it’s a good idea to overpay a mortgage, say if you should be lucky enough to inherit some money.
Well, the short answer is Yes, although as with all financial matters, there are various other issues to take into consideration. And that’s where the impartial financial advice that Cailean Mortgages can offer you comes into its own.
There is a potential for saving a considerable amount of money on mortgage interest payments and paying off more could shorten the mortgage term.
We won’t bore you with a list of examples of savings or by how much you could cut short the mortgage term as, of course, everyone’s circumstances are different.
Your Cailean Mortgages financial adviser will help you to complete a monthly budget, measuring your income and expenditure to see if there is anything left over at the end of the month that could go towards clearing your mortgage sooner.
It’s also a good idea to speak to your mortgage lender as some deals limit the amount of money you can overpay without being faced with a penalty charge.
However, it’s also essential to take into consideration any other debts you may have. Would it be better to clear these first if you’re lucky enough to have spare cash left at the end of every month?
It makes more sense to clear debts such as credit cards where the interest rate you pay will be much higher than your mortgage interest.
You should also plan to save as much as you can. There’s no such thing as a job for life these days and, of course, as a homeowner, you have to take into consideration repairing or replacing due to wear and tear on your property - the cost of a new boiler, heating system or roof doesn’t come cheap.
Our last word of warning would be with regard to interest rates which are relatively low at the present time. Now, if interest rates rise in the future and you are on a fixed rate mortgage deal, you should find yourself in a good position.
However, the opposite will hold true if rates rise and, going on past experience, they could double - or worse. If you hold a variable rate mortgage, you could be in serious trouble depending on how high interest rates climb.
In this case, overpaying your mortgage should become a serious consideration as well as looking into changing to a fixed rate mortgage.
In short, our advice is:
- Ask Cailean for advice
- Prepare a monthly budget
- Speak to your lender
- Consider paying off more expensive debts first
- Try to save for a rainy day
- Seriously consider overpaying if the circumstances are right.
Cailean Mortgages’ financial advisers are available to help you on 0131 510 1771.