by Mark Johnston
The record is interest rate is a rare opportunity to make some considerable inroads into borrowers outstanding mortgage balances. Unfortunately most are using the spare money to finance their lifestyles. Some are enjoying the additional money to make non essential purchases whilst others worryingly are relying on the rate to be able to survive.
Since March 2009, when the Bank England base dropped to the historic low of 0.5%, borrowers have been in a great position paying much less than they had done in pervious years. The Chief executive Karen Barrett of the website that published the report said: “This has presented many with the ideal opportunity to pay off their outstanding mortgage more quickly, or enjoy a greater level of repayment comfort down the line,”
The report showed that only 10% of tracker and variable mortgage customers are overpaying their mortgages. It went further by breaking down the ones that weren’t overpaying. 25% of borrowers are using the spare money to pay for general living expenses which is a concern to the industry as they will be the ones that struggle when interest rates go up. The media have even started calling these customers “zombie borrowers” as they are compared them to the walking dead. They know they are in financial trouble but the low interest rates are keeping them afloat at the moment.
Well over half of customers are using the money to pay off debt a lot quick as it tends to cost more than longer term borrowing when looked at the amount someone has to pay on a monthly basis. Some are even putting the extra money into savings but the low interest rates will result in small returns which wouldn’t make sense when some home loans are costing well over what banks and building societies are paying in savings interest. Some just want to keep the money available for more difficult times but a flexible mortgage would allow borrowers to overpay and reap the benefits of underpayments in more difficult times.
Karen Barrett finished by saying: “We are encouraged by the increasing numbers who are using their repayment savings to erode their credit card and loan debts. However, those who are putting the extra into a savings account are missing out,”
As one of the most expensive purchases, a home loan is one of the areas that frugal borrowers can save the most on. The market is fighting for customers at the moment so there are some great deals out there and a review of your current mortgage against what’s in the best buy tables would most likely identify quick savings.
In the current climate, flexibility is key. Make sure you check the small print to see if the lender allows overpayments and underpayments. Its also worth checking to see if there is any early redemption fee for a mortgage that’s paid off before the term in ended.
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