Making overpayments on your mortgage may be one of the best financial decisions you make. However, should you save or pay off your mortgage early? We weigh up some of the options, so you can decide.

Making overpayments

Find out first if there is a minimum amount, a best time to make an extra payment, or whether there are any penalties for repaying all or part of your mortgage early. Most mortgage providers apply an early repayment charge if you decide to end your deal while you’re within the deal period or overpay more than 10% of an outstanding mortgage balance in a year. Details of any specific Early Repayment Charge, specific to your mortgage, will be explained on your Mortgage Offer Document.

Consider other debts

If you have other borrowings, it may be worth repaying those first as you might be paying more interest on loans and credit cards than on your mortgage. Credit cards and store cards, for example, charge a high rate of interest over the course of a year. Always pay off more expensive debts before thinking about reducing your mortgage.

Pension Schemes

Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief. If you don’t have a pension and have money to spare, it’s important to think about paying into one. So, think about this before deciding to use your savings to pay down your mortgage early.

Savings Accounts

If you’re already contributing to a pension scheme, rather than pay off your mortgage it might make more sense to put your money into a savings account. That’s if you can find one which pays a higher rate of interest than the rate you’re being charged on your mortgage.

Alternatively, if you have savings and you’re earning less after tax than the mortgage rate, it may be worth using your cash to pay off some of your home loan. Although once you’ve paid off your mortgage, you can’t use it for anything else. Take time to think if you will need this money later. Would it be better to keep this money in reserve?

Future Planning

If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner. However, there are many factors to consider before you make this important decision and you should seek the help of a financial adviser to ensure this is the right course of action, not just for the present, but for your future self.

To review your unique situation, get in touch with one of our independent mortgage advisers on 02892 605 088 or email