The case for overpaying

The overpayment facility gives the chance to pay off a mortgage early and therefore reduce interest charges. This is particularly significant when interest is calculated on a daily basis.

Many traditional mortgages do not allow overpayments. Even those that do often calculate interest on an annual basis, so it can be up to 12 months before any benefit accrues to the borrower.

In these times of low inflation, chipping away at the mortgage is actually a very good investment. If we assume a mortgage interest rate of 6.25%, a standard rate taxpayer would need an investment producing 7.8% gross to produce an equivalent return, and a higher rate taxpayer would need to earn 10.4% gross on their money.

The savings made in interest far outweigh the returns offered by a savings account. These savings also often exceed investment yields, but without the risks associated with shares.

Since there are unlikely to be early redemption penalties on this type of account you should not be surcharged for accelerated payments.