Why Are People Not Overpaying Mortgages?
According to a survey, 56% of homeowners with a mortgage never get around to overpaying. This is an interesting finding because most mortgage applicants have every intention of overpaying when they start off on their mortgage journey (or at least that’s what they tell me!).
Most homeowners tend to be aware of the difference overpaying mortgages can have on the interest you end up paying back. Even if you do only overpay by small amounts. It’s also relatively well known that the earlier you start overpaying the better because the extra payments have a longer period to take effect.
The survey, which was completed by Compare the Market, suggests that Homeowners cannot afford to make extra payments. However, I believe the main reason that people end up not overpaying mortgages is that, let’s face it, there’s always some more exciting thing you can be spending your money on!
So, if you would like to overpay what should you do?
A big part of the problem is remembering to overpay. It’s not something that’s particularly likely to cross your mind too often, except perhaps when your mortgage only has a few years left. Therefore, I recommend setting up a standing order that’s payable to your lender each month. If you can organise that to go out on the same date as your regular mortgage repayment, the overpayments will quickly start to “feel” part of your mortgage.
A benefit of opting for a standing order is that, unlike a direct debit, you are in control, not the receiver. That means if you have a financial emergency you can quickly log into your online banking and cancel the standing order so that it doesn’t go out the next month. Whilst it’s not ideal to stop overpaying, at least you will have benefitted from the overpayments made up until that point.
Overpaying your mortgage is a great habit to get into, you don’t need to go overboard, but you’ll be pleased when you get to the end of your mortgage repayments and realise you’ve shaved off a year or two.
In some cases, lenders will let you make reduced mortgage repayments or take a payment holiday if you can demonstrate a history of overpaying. Before taking a payment break though, it’s important to check with your lender that you are eligible. Otherwise, you might end up with a negative mark on your credit report.