Choosing a mortgage is complicated enough just figuring out your rate type, mortgage term, affordability and understand what’s really going on with interest rates. Chuck in words like overpayments, portability and early repayment penalties, and you practically have to learn a new language just to buy a home! And that’s before you even speak to a solicitor…
However, most mortgages are sprinkled with some lovely additional features which bring about flexibility in the event that your work, personal life of finances change. Understanding these can give you a life line when you need it most, and avoid costly mistakes!
Overpayments: The Mortgage Power-Up
Overpayments are the turbo boost button for your mortgage. Got a bit of extra cash lying around? Maybe you received a bonus or saved some pennies by giving up your daily coffee fix? When it comes to overpayments, every bit helps.
Overpayments are when you pay more than your standard monthly mortgage payment. Most lenders will allow you to overpay by up to 10% of your outstanding mortgage balance every year, even in a fixed period.
What’s great is that overpayments come straight off your mortgage balance, reducing the interest you pay and allowing you to pay off your mortgage faster. It's like putting your mortgage on a treadmill – faster repayment means a fitter, healthier financial future.
Overpaying by as little as £100 per month can shave years off your mortgage term and save you tens of thousands in interest!
Be sure to check if your mortgage allows overpayments without penalties. Some lenders limit how much extra you can pay each year without charging a fee. It’s always a good idea to contact your lender for a statement before you overpay a bulk sum, or before setting up a monthly overpayment, to avoid any early repayment charges.
Underpayments: The Mortgage Chill Pill
Underpayments are the perfect feature for when life throws you a curveball, and you need to take it easy on the payments for a bit.
Underpayments let you pay less than your regular monthly amount, typically with your lender's permission. However, underpayments usually require you to have overpaid in the past or be ahead on your mortgage schedule. It’s like a financial rainy-day fund – you need to have saved up those sunny day payments first.
It’s great for those times when your budget is tighter than your favourite pair of jeans after the holidays. Maybe you’ve had an unexpected expense or just need a financial breather.
Payment holidays: The Mortgage Vacation
Payment holidays became a much talked about topic during the pandemic when so many people lost their income.
While not all lenders will this option, some will allow you to take up to 3 months break from your mortgage repayments under special circumstances. But remember, you’ll still have to make up these payments in the long run!
Portable Mortgages: The Home-Hopping Hero
If you’re someone who loves change and adventure, then you’ll want to know if your mortgage is portable – the home-hopping hero of mortgage features.
A portable mortgage allows you to transfer your existing mortgage, and rate, to a new property without incurring early repayment charges.
If you’re planning to move before your mortgage term ends, or are only halfway through a 5-year fixed period with a brilliant interest rate that you don’t want to leave behind, porting your mortgage can save you from hefty fees and the hassle of getting a new mortgage. It’s like having a magical carpet that takes your mortgage with you wherever you go.
If you need to borrow more in order to buy your step-up home, the lender might be willing to port your existing mortgage amount and rate, but any additional borrowing will likely be in line with the lender’s rates and offers at the time you apply.
Not all mortgages are portable, and even if yours is, you’ll need to meet your lender’s criteria for the new property. Think of it as moving house with a very particular pet – it needs to approve the new digs.
Early Repayment Charges (ERCs): The Mortgage Party Pooper
ERCs are fees you pay if you repay your mortgage (or a significant chunk of it) before the end of your agreed term. Usually these will apply within the fixed-term portion of your mortgage, and will scale down with each year – for example 2% in the first year of a 2-year fixed deal, and 1% in the second year.
Lenders charge ERCs because they count on the interest you’ll pay over the fixed term. Paying off early means they lose out on some of that sweet, sweet interest. Think of it as breaking up with your mortgage early – it wants some compensation for the heartbreak.
Before making any big repayment moves, check your mortgage terms. Some mortgages allow overpayments up to a certain amount without triggering ERCs. It’s like navigating a field of daisies without stepping on any bees.
And there you have it – the quirky world of mortgage features demystified! From supercharging your payments to chilling out with underpayments, hopping homes with portable mortgages, and dodging the ERC party pooper, you’re now equipped with the knowledge to navigate your mortgage like a pro.
Remember, always read the fine print and consult with your lender to find out what’s best for your unique situation.