"As the name suggests, overpaying your mortgage is when you pay more than your contracted or agreed monthly payments. Why do this? Well, it's not just about getting the entire thing paid off quicker; it's also about reducing the overall interest you're due to pay. "Most mortgages are on an annuity basis, so you're paying capital and interest," says Hennessy. "Every month, the interest hits the capital balance that's outstanding on your mortgage, and it calculates in that mortgage repayment how much is interest."
""They would repay €1,796 per month - but say they have that extra €200 available that they could bring their overall mortgage repayment up to about €2,000 per month," says Hennessy. "By overpaying €200 per month, they'd save five years on their mortgage, so they'd drop their term from 30 years right down to 25 years and they'd save €44,736 in interest.""
Overpaying a mortgage means paying more than the contracted monthly payment. Most mortgages operate on an annuity basis, so each payment includes capital and interest. Reducing the outstanding capital balance lowers the interest charged, shifting a greater portion of each payment to capital and accelerating repayment. For example, a €400,000 mortgage over 30 years at about 3.5% requires €1,796 per month; increasing payments by €200 to about €2,000 per month can cut five years from the term and save approximately €44,736 in interest. Some lenders are extending mortgages to older borrowers, including post-retirement up to age 80, and offering larger loans than previously expected.
Read at Irish Independent
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