Overpaying mortgage 'could save cash'

Monday, 19 January 2009 12:00

As the base rate falls and homeowners see their mortgage payments drop, many experts are recommending borrowers use the extra money to make overpayments.

Customers on a tracker or standard variable rate (SVR) could take years off their mortgage by maintaining the same payments, Moneysupermarket.com said.

According to the comparison site, a homeowner on a lifetime tracker mortgage from First Direct paying around £1,000 per month in October would have seen their minimum payment drop to £690 now.

If rates stayed at their historic low and the homeowner continued paying £1,000 per month, they could expect to save £16,000 and pay off their mortgage nine years early, the firm said.

Louise Cuming, head of mortgages at moneysupermarket.com, said: "The fall in rates has certainly helped many borrowers - who can now either take the cut in expenditure or keep their payments at the same level and put some sorely needed extra equity into their homes."

Melanie Bien, spokesperson for Savills Private Finance, said: "If you have a credit card debt or overdraft then I think you should pay that off first.

"Savings accounts do have low rates of interest at the moment so it would make sense to overpay on your mortgage if you can afford it.

"The only thing to consider is that you won't be able to access this money if you need it back."

If you think you may need the money but are keen to reduce your mortgage, an offset account is worth considering, Ms Bien added.

Overpaying your mortgage and putting more equity into your home could also secure you a better deal if you are looking to remortgage, as many lenders are keeping the best rates for low loan-to-value customers.

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