Stop Overpaying Your Mortgage

In the past year, homeowners have been advised to overpay their mortgage whenever possible. However, this advice has changed in light of the news that banks and buildings societies have increased the interest rates they are paying on savings accounts.

Those on low mortgage rates could actually save £1200 a year by saving their money rather than paying it down on their mortgages. Some homeowners may be tempted to repay chunks of their mortgage with the base rates being just slightly higher than the Bank of England rates.

Repayments on a typical mortgage of £150,000 have gone down by about £400 per month with the base rate taking a tumble from 5.5% to an all-time low of 0.5%. Brokers have been advising their clients to take advantage of the lower payments to continue making their previously higher payments so that they can repay their mortgages sooner than they expected.

According to the reports from the Bank of England, homeowners have repaid as much as £418 million more than they borrowed in the month of August. This is the first time this has happened since it started keeping such records.

Experts are advising that at the present time it is better to put any extra money into a savings account instead of overpaying your mortgage. This method will allow you to save money in two ways. You will earn interest on the money in your account and then when the base rates start to rise, you still have the savings to use to repay a huge chunk of the mortgage.

Those homeowners who have offset mortgages can fare even better. Data released by London and Country brokerage firm show that a person with a £50,000 lower offset tracker loan, who put the money into a fixed rate bond, they would actually earn £780 per year. A person paying taxes at the basic rate would actually save more than £1165 per year.

If you save now and leave the overpaying until later, you have money in your account to use if a need arises. In addition to earning interest, you do have funds available when you need them.

Pay your lower mortgage payment and when the rates start to rise so that your payment also increases, you can take out a substantial amount of your savings and make a large mortgage payment. In fact the interest you would earn on a higher deposit could be enough to allow you to repay more of the mortgage than you expect.

As the recession comes to a close, house prices will also start to rise so that if you do decide to sell, you will make more of a profit on the sale.

Tags: london, overpay mortgage, all-time low, savings accounts, mortgage repayments