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Mortgage Glossary: Overpayment

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.

Get professional help from a qualified independent mortgage advisor and see how much you could save on your mortgage payments. There's no obligation, just plain good advice.

See also: Financial Services, Mortgages