Absolutely. Any way you have to pay off or reduce your mortgage can have significant financial benefits over the term of the loan.
If you’ve come into some cash from say, an inheritance, property sale, share dividend, work bonus or even a tax refund, you can use it to make one large repayment on your mortgage, or use it to increase the amount you pay each month.
Depending on how much your cash windfall was, you have a number of options open to you, and with a little research, or some expert advice, you can choose the one that offers the most long and short term benefits.
Paying off a lump sum when you remortgage
If you have a mortgage of £100,000 and come into some money, say £40,000. Depending on your mortgage agreement, you could pay off £40,000, reducing your mortgage to £60,000, and then remortgage that amount with a new lender.
This would usually apply if you are outside of a fixed-rate period, and are now with your lender’s standard variable rate (SVR).
SVRs are usually more expensive, so it would be a good time to make a large one-off payment and then look to change to a mortgage provider who offers a better deal.
Lenders are all different and rules can vary between products, so you’ll need to check with your lender on their policy about early mortgage repayments, as well as the deal you agreed to.
Make extra repayments
You could also use the lump sum to make larger repayments each month, in fact many mortgage providers allow you to overpay by 10% a year, without incurring any penalties.
Can I use the lump sum to offset my mortgage?
Yes. Another option is that some banks and building societies offer offset mortgages.
Essentially you deposit the money into an account with them, and the balance of that savings account is used to reduce or ‘offset’ the amount of interest you’re charged.
The main advantage is that you can save significant amounts of money because you are paying a lower interest rate, and this could take months, if not years, off your mortgage repayment term.
The added bonus is that the cash amount will always be available to you, should you need it.
Mortgage Overpayments Calculator
This calculator can show you how much you could save and what your new mortgage payments will look like if you were to make overpayments as a lump sum, monthly amount or both.
Your current monthly repayment is:
What your mortgage repayments will look like based on your overpayments:
Potential mortgage term reduction:
Amount of interest you could save:
Now that you have a rough idea of how overpayments will affect your mortgage deal, make an enquiry to speak to a broker for bespoke advice about whether this is the right option for you.
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