Many UK residents are forced to stick with their existing mortgage deals. Those who have savings wonder if their mortgage can help increase savings rates and those who are overwhelmed by debt want the mortgage to help them reduce costs.
These are different sides of the same coin and both parties can get some of what they want.
Interest rates on savings accounts are horrible right now. However, mortgage interest rates have not fallen as much. Based on the low account interest rates, savers wonder if they should make larger than required monthly mortgage payments.
They should consider whether the mortgage rate exceeds post-tax savings interest. They also need to research whether they would face overpayment penalties.
If a homeowner has not yet built an adequate emergency fund, the mortgage should not be overpaid. If the boiler explodes and the money has already been applied to overpay the mortgage, costly credit cards may need to be used.
Just because a previous overpayment has been made, the homeowner cannot make a short payment one month.
For those in debt, it may be tempting to add expensive loans and credit cards to the mortgage. Alternative solutions include reducing the cost of the card by transferring balances to cards with lower interest rates. In addition, the lender may not allow the homeowner to add debt to the mortgage.
In general, lenders are particular regarding the amount of loans compared to home value.
What seems to make the most sense on the surface is not always the best course of action. Overpaying on a mortgage can save big on interest but is not always the answer. Those in debt should keep their borrowing unsecured if they anticipate they might skip payments.
However, moving loans debt to a mortgage and increasing mortgage payments can save money.