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If you’re a homeowner, it’s important to make sure you can stay on top of all of your household bills. You always want to be sure that your income covers everything you need it to.

But what about if you find you’ve got some extra money left at the end of the month? Maybe you’ve had a pay rise, you’re spending less on your bills or you might just have a lump sum of money. Whatever the reason, it’s important to work out whether it’s better for you to save this or to use it to overpay your mortgage.

Can you overpay?

Before you start trying to overpay on your mortgage, it’s important to work out whether you can do this. If you’re still in the initial fixed deal you signed up to when you first took out your mortgage, there’s probably a limit to how much you can overpay each year. This is usually 10% of your existing mortgage balance but it can vary – check the details of your mortgage to make sure.

But if you’ve finished your initial deal, you’ve probably moved onto your lender’s Standard Variable Rate (SVR). There’s usually not a limit for overpaying on the SVR but this depends on the individual lender or broker – again, check before you start overpaying.

If you overpay more than the limit, you could have to pay a penalty fee. You’ll want to avoid this, so use a mortgage overpayment calculator to work out how much you can overpay, like this one from MoneySavingExpert.

Will you save money?

Overpaying on your mortgage means you can end it sooner. This means you’ll save money on interest. Even if you can’t afford to overpay very much, or you can’t make regular overpayments, it will still save you some cash.

For example, if you’ve currently got a £100,000 repayment mortgage for 30 years at 3.5% interest and you can afford to spend £25 extra on it a month, you could end your mortgage two years and eight months earlier. What’s more, you’d save more than £6,000 in interest over the lifetime of your mortgage.

What to watch out for

As you can save a lot of money by overpaying your mortgage – not to mention clear it much faster – you might think it’s a no-brainer. But it’s important to make sure you’re not leaving yourself too stretched with your other bills.

So if you’ve only got a small amount of disposable income left at the end of the month after you’ve paid all of your bills, it might be better for you to put this towards an emergency savings pot instead. This will be useful if you have an unexpected bill to pay one month – for example, if your washing machine breaks or your car stops working. Find out more about why this is a good idea with our blog on rainy day funds.

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