How to reduce your mortgage term

Monday, 11 February 2008 12:00

Homeowners are being urged to take advantage of tumbling interest rates by over-paying their mortgage each month.

People whose monthly repayments have reduced thanks to the fall in the bank rate last week from 5.5 per cent to 5.25 per cent could reduce the term of their mortgage significantly by putting this extra cash back into their home loan.

Rising debt and credit problems in the UK mean it has become even more important to get ahead with repayments, according to mortgage broker John Charcol, which has issued the advice.

And with the Bank of England expected to reduce the interest rates further this year, the most savvy of homeowners will be overpaying the broker said.

Katie Tucker, technical manager of John Charcol, said: "For many people a mortgage is what dictates when you can retire. By paying off even a few years early it can make a difference to your quality of life not only because of age, but because of the money you free up to spend on other things."

Many borrowers on variable rates have seen their monthly mortgage repayments rise five times in the last two years and the typical monthly payment has soared from £555 to £629.

Ms Tucker said borrowers who have been able to afford these payments should now consider keeping them at this level because any money that doesn't pay off interest will instead repay capital.

"If you maintain the payments of £629 per month you paid on £100,000 of debt at 5.75 per cent, but your rate has moved down to 5.25 per cent now, £30 of it is extra, and chips away at the capital. If continued this pays your mortgage off two years early."

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