When you are researching mortgages and their features you may come across the term 'overpayment' and wonder what this refers to.
An overpayment is a feature of most if not all mortgages offered by all lenders nowadays and it allows you to make 'extra' payments in addition to your regular contractual mortgage payment, subject to you being able to afford it.
There are restrictions in place however, it's common for lenders not allowing more than 10% of the mortgage balance at the start of the year to be paid in overpayments, so if you have a £100,000 mortgage you could overpay by £10,000 as well as your normal mortgage payments, either by a lump sum or regular monthly contributions, your allowance for overpayments will then be readjusted at the start of year 2.
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We find these are very useful for self employed with irregular income patterns or employed who receive commission and bonuses, these clients can use their money as and when they feel comfortable to overpay the mortgage and the result of this is a shortening of your mortgage term, i.e repaying the mortgage quicker. This is more beneficial to these types of clients rather than trying to commit to a shorter term with higher contractual mortgage payments.
Finally it's worth noting that one or two lenders are allowing an overpayment facility of 20% per annum, so if this could be useful for you remember to make your adviser aware.
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