Culture

David Hollingworth replies Overpaying your mortgage

December, 21, 2024-05:27

David Hollingworth replies Many borrowers like the idea of a fixed rate so they know exactly where they stand for their month-to-month budgeting. The potential downside is that the lender will generally expect you to lock into the deal.
Lenders will price their rates depending on the market rates and cost of funds at the time.
To protect their interests, they therefore put an early repayment charge in place. That acts as a penalty for those that pay off early, covering the potential cost to the lender.

Overpaying your mortgage

Lenders recognise that borrowers want some flexibility to overpay and cut the balance of the mortgage more quickly when possible.

As a result, most fixed rates will allow a certain level of overpayments each year without incurring any penalty.

Most lenders typically offer up to 10 per cent per annum without charging an ERC and some lenders can be more generous than that.

Most lenders base the 10 per cent on the outstanding balance at the time you repay, but your lender Nationwide will base the 10 per cent on the initial balance at the start of the fixed-rate period - allowing you to pay back a little more than 10 per cent of £41,000.

Your yearly allowance should also reset again in February, which could give you the chance to take off another 10 per cent of the original balance in just a couple of months' time.

You may want to clarify the exact timings that apply with Nationwide.