Use the annual bonus to lower your mortgage

This year saw record city bonuses, in some cases millions of pounds. However even for the recipients of a more modest annual receipt, an overpayment into your mortgage can contribute to becoming mortgage free a lot sooner.

Charcolonline.co.uk is showing consumers how overpaying on their mortgage can have a very positive effect on their finances, but warning that borrowers must know the conditions of overpayment.

Katie Tucker of charcolonline.co.uk comments: “Most borrowers will have the ability to overpay their mortgage without incurring any Early Repayment Charges (ERCs), and some may not be aware of this. The most common amount which can be overpaid, without incurring ERCs, is 10% per annum, but some lenders allow unlimited overpayments which means that in most cases a large chunk of the mortgage can be overpaid. However, borrowers must be aware of any conditions when overpaying as breaching any terms could result in a large penalty. My advice would always be to check with your lender before making an additional payment.

“In addition to allowing some ERC free overpayments, some mortgages are fully flexible and allow overpayments to be re-borrowed. Such a facility will allow large bonuses to be parked in the mortgage, thus saving interest, until needed for any large expenditure during the following year.”

Tucker continues, “Making a single overpayment on a mortgage has a clear benefit in the long-term. Those who choose to use some of their bonus every year to overpay on their mortgage will naturally see an even bigger effect. Additionally, the payment does not necessarily need to be made as a lump sum; if you have had a salary increase you may now be able to make a monthly overpayment which is just as beneficial.”