Shouldn’t overpay mortgages ?

Shouldn’t overpay mortgages ?   | read this item

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A survey by The Independent has found that a growing number of homeowners in Britain are choosing to overpay their mortgages. The research, which included some of Britain`s biggest mortgage lenders, found that borrowers are `taking the opportunity to pay off their mortgage debts rather than spend any extra cash`.

Although most lenders usually allow overpayments of about 10% of a debt many lenders are raising that threshold and encouraging their customers to `overpay and cut their mortgage debts`.

Homeowners on low mortgage rates up to £1,200 a year would be better off by saving instead of overpaying their loan or cutting the mortgage down, or it could be even better if they off move their money out of an offset deal into a fixed-rate bond.

Bank of England has seen repayments on a typical £150,000 loan tumble by around £400 a month as the base rate fell from 5.5% to its historic low of 0.5%.

According to their figures many homeowners are keeping their repayments at a higher level in order to repay the capital on their home quicker, following advice from some brokers. Bank of England data shows some have paid back £418m more on their mortgages than they borrowed last month. Homeowners can be better off if they can save the cash and then overpay the loan when base rate rises again.
Those with offset deals can make a real difference. According to figures from broker, London & Country show such deals; if a borrower takes £50,000 out of one of the lower rate offset trackers and put it into a leading fixed-rate bond, then even a higher rate taxpayer could earn £780 more. Also a basic rate taxpayer could be £1,165 better off over a year.

Topics: Mortgage