The Question
I took out my mortgage in 2020 and it’s up for renewal in February 2025. I’m currently on a good rate (1.99%) and concerned about the higher repayments I’ll inevitably face in February. Can I start making overpayments now with six months to go? Or is it too late?
Darren’s Answer
As your mortgage renewal approaches, considering overpayments can be a strategic way to manage higher future repayments.
With your current rate of 1.99% set to expire in February 2025, you now face the prospect of higher interest rates. Overpayments can help reduce the principal balance of your mortgage, potentially lowering your loan-to-value ratio (LTV) and making you eligible for better rates when you remortgage.
Many lenders allow overpayments of up to 10% of the outstanding balance each year without incurring penalties. This flexibility means you can either make a lump-sum payment or spread your overpayments monthly.
For example, if your mortgage balance is £200,000, you can overpay up to £20,000 per year. These overpayments will directly reduce the principal, which means you’ll pay less interest over the life of the loan and could secure a more favourable rate when it’s time to renew.
However, it’s essential to balance overpayments with your overall financial health. Compare the interest savings from overpaying your mortgage with the potential returns you could earn from investing that money or saving it in a high-interest account.
If your savings account offers a competitive interest rate, it might be beneficial to maintain liquidity rather than locking your funds into the mortgage.
Before proceeding, review your mortgage agreement for any specific terms regarding overpayments and consult with your lender or a financial adviser. They can provide personalised advice based on your financial situation and help you understand the long-term implications of overpaying your mortgage.
This strategic approach will ensure that you make the most informed decision, aligning your mortgage payments with your broader financial goals.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over two years and is now here to answer YOUR questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
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