Why You Should Consider Overpaying Your Mortgage
Recent surveys have indicated that nearly a third of people would like to be able to save more money and 25 per cent of people would like to be able to get out of debt by the end of 2014. For most of those in the UK their largest financial debt by far is their mortgage. Of course, we all like to have a nice holiday and a decent car to drive and more and more people are holidaying more than once a year and also changing their cars on a more regular basis but these costs pale into insignificance compared to the typical mortgage debt.
So just what can you do to reduce this financial burden?
The most effective was to cut your monthly repayments and the overall amount of interest that you will pay on your home loan is to overpay whenever you can. Doing so can literally cut thousands of pounds from your interest amount. Do be aware, however, that some mortgages do not allow overpayments, sometimes just for an initial period so check the details of your mortgage before deciding to overpay. Also some overpayments are only allowed as a lump sum once a year so again check the details.
Millions of home owners have had the advantage of historically low interest rates in recent years with the Bank of England base rate set at only 0.5 per cent since March 2009. However, it is clear now that the only direction for base rates is up and this is going to increase monthly mortgage repayment for those millions of homeowners, possibly as early as 2015 but certainly by 2017, according to market experts.
Anyone with debts in addition to their mortgage would be financially better off paying those other debts off first as they are almost certainly at a significantly higher interest rate that most mortgages at the current time. Personal loans, overdrafts, store cards or credit cards should be paid off before starting to think about overpaying your mortgage.
However, for those considering putting money into an ISA or increasing payments into a pension plan then the financial benefit will almost always be greater by reducing your mortgage balance first assuming your mortgage allows overpayments and does not charge a hefty fee to overpay or repay early.
Even small additional amounts paid off your mortgage balance can have a significant effect. For example consider a 150,000 mortgage over a 25 year period at an interest rate of 3.5 per cent. If you were to overpay by just 250 a month from the start of the mortgage term you would save almost 28,000 in interest and pay off the mortgage after only sixteen and a half years. That is an astonishing benefit for a relatively small overpayment and presented like that why would anyone not overpay?
Even if you only overpaid by just 50 a month on the same 150,000 mortgage, you would save nearly 8,00in interest and cut the loan term by more than two years. These savings benefits from overpaying your large mortgage bear no comparison to what you would receive in interest in even the best savings account or ISA. As already mentioned, just be aware of any restrictions regarding overpayment amounts and any fees or charges that might be imposed if you overpay too much. If you are in any doubt about the best course of action then talk to a specialist mortgage broker.
So just what can you do to reduce this financial burden?
The most effective was to cut your monthly repayments and the overall amount of interest that you will pay on your home loan is to overpay whenever you can. Doing so can literally cut thousands of pounds from your interest amount. Do be aware, however, that some mortgages do not allow overpayments, sometimes just for an initial period so check the details of your mortgage before deciding to overpay. Also some overpayments are only allowed as a lump sum once a year so again check the details.
Millions of home owners have had the advantage of historically low interest rates in recent years with the Bank of England base rate set at only 0.5 per cent since March 2009. However, it is clear now that the only direction for base rates is up and this is going to increase monthly mortgage repayment for those millions of homeowners, possibly as early as 2015 but certainly by 2017, according to market experts.
Anyone with debts in addition to their mortgage would be financially better off paying those other debts off first as they are almost certainly at a significantly higher interest rate that most mortgages at the current time. Personal loans, overdrafts, store cards or credit cards should be paid off before starting to think about overpaying your mortgage.
However, for those considering putting money into an ISA or increasing payments into a pension plan then the financial benefit will almost always be greater by reducing your mortgage balance first assuming your mortgage allows overpayments and does not charge a hefty fee to overpay or repay early.
Even small additional amounts paid off your mortgage balance can have a significant effect. For example consider a 150,000 mortgage over a 25 year period at an interest rate of 3.5 per cent. If you were to overpay by just 250 a month from the start of the mortgage term you would save almost 28,000 in interest and pay off the mortgage after only sixteen and a half years. That is an astonishing benefit for a relatively small overpayment and presented like that why would anyone not overpay?
Even if you only overpaid by just 50 a month on the same 150,000 mortgage, you would save nearly 8,00in interest and cut the loan term by more than two years. These savings benefits from overpaying your large mortgage bear no comparison to what you would receive in interest in even the best savings account or ISA. As already mentioned, just be aware of any restrictions regarding overpayment amounts and any fees or charges that might be imposed if you overpay too much. If you are in any doubt about the best course of action then talk to a specialist mortgage broker.