Follow Us on Facebook Follow Us on Twitter Follow Us on Google+ Follow Us on Pinterest Follow Us on Tumblr Visit our YouTube Channel Subscribe to our Feed Subscribe via FriendFeed

Connect With Us

How To Shave Years From Your Mortgage

by Jim ONeil on April 13, 2011

in Mortgages

Many of us may not realize that we are overpaying for our mortgage loans. We borrow against the increasing value of the properly and use this money for remodeling, vacations, and automobiles. Some of us are now repaying this debt, with official figures reflecting a record rate of repayment during the final three months of 2010.

Between October and December 2010, UK residents reduced their mortgage loans debt by an impressive £7 billion. Large down payments account for some of this but the rest is due to people realizing that it makes sense to pay off debts in this economic climate.

There are various ways to overpay a mortgage and each has its benefits and pitfalls.

According to Barclays, ten percent of people are overpaying an average of £200 per month on their mortgages. Overpaying reduces the total amount of interest paid and shortens the mortgage term. Someone who overpays by £250 per month on a £150,000 25-year repayment mortgage with a 3.5 percent SVR saves £27,275 and shaves eight years and six months off the mortgage.

Interest rates on savings accounts are so low that it does not make financial sense to save money. Some homeowners fear rising interest rates and want to take advantage of the low rates to pay down their mortgages, while others want to increase their equity in their home.

This will provide them with better remortgage deals or release them from a negative equity situation.

Many mortgages permit penalty-free overpayment of up to ten percent of the outstanding balance. Those on lifetime tracker, SVR, and flexible mortgages can overpay by however much they wish. However, not everyone should consider repayment because having an emergency cash fund is important.

Those on a very low base rate tracker mortgage will benefit more from putting money in a savings account to prepare for rising interest rates.

Comments on this entry are closed.

Previous post:

Next post: