Thousands of savvy homeowners are taking advantage of
lower mortgage rates to pay off their mortgage sooner.
The Co-operative Bank is reporting a dramatic 50% increase in the number of customers making overpayments in the last year.
Mortgage rates have been falling on the back of five consecutive reductions in the base rate.
The biggest benefactors have been the four million homeowners on
tracker and
variable rate mortgages, some of whom have seen their monthly repayments plummet by as much as £400.
Small payments now mean big savings later
And many have been taking this opportunity to overpay on their
mortgage, saving themselves thousand of pounds in interest and dramatically reducing their mortgage term.
For example, someone with a 25 year loan of £100,000, making overpayments of £50 a month could knock 3.6 years and £12,000 off their mortgage.
Making overpayments is particularly advantageous in the early stages of a mortgage, when your interest charges are at their highest.
The good news is that most mortgages allow overpayments of up to 10% of the loan for each year, but be sure to check with your lender first.
Consider paying off other debt
It is worth mentioning that overpayment is only the best plan if you don’t have higher interest-earning debt elsewhere, such as credit cards or
personal loans.
If so, then you will be better off funnelling your additional funds into these debts instead.
As a final point, if you do owe any money on credit or store cards, then it’s essential you avoid the sky-high interest rates by switching it to a
0% balance transfer card.
The best on the market is still the
Virgin credit card, which charges no interest on transfers for a whopping 16 months, with a 2.98% fee.
