by Mark Johnston
Home Owners Expect to Pay off Mortgage Early!
It seems that the lower mortgage rates that are now on offer thanks to the funding for lending scheme and the bank of England’s base rate remaining at its historical low of 0.5 per cent has created the potential for borrowers to pay off their mortgage debt quickly.
Some industry experts feel that that paying off debt is always a good idea in an uncertain economy.
According to a survey commissioned by Sanlam Private Investments, 30 per cent of current home owners expect to pay off their mortgage ‘well ahead of time’, while 20 per cent of home owners think they will redeem their debt ‘slightly ahead of time’.
It also appears that older borrowers were by far the most confident about paying off their loans early or on time.
The fact is paying off a mortgage early is one of the best investments people can make as they are no longer at the mercy of the see saw property market and they can also put the money they are no longer paying on the mortgage to good work elsewhere.
However, some industry insiders feel that with mortgage interest rates so low there is no point in paying off a mortgage early.
Also according to some mortgage and finance experts, paying down your mortgage early may not always be the smartest option.
This can because some lenders “punish” borrowers for getting out of their loan earlier than expected. This is usually in the form of early repayment penalties, the penalties are a provision that states that in the event borrowers pay off the loan entirely, they will owe an extra sum of money.
These penalties are especially common if a borrower has a special offer fixed or discount rate deal.
The fact is that lenders want their borrowers to stick with them once the cheap rate ends, as at that point their rates shoot up. This therefore means it is not in their interest to let you repay the mortgage more quickly, because the longer it takes you to repay, the more they earn.
Although this said many lenders do allow up to 10 per cent annual overpayments without any penalties.
For example: if a borrower has a £100,000 mortgage which is taken out over a 25 year period, with an interest rate of 6 per cent. Overpaying by £100 a month could potentially save home owners a healthy £26,892.54 and knock six years and four months off the life of the mortgage.
In conclusion borrowers should try to remember that though a mortgage might look big in relation to a property’s value and earnings but it will decline over time therefore it is an individual choice whether or not they pay off their mortgage or simply make some overpayments!
On a final note home owners should take note that it may be worthwhile having a cash emergency fund as overpay most mortgages and the cash is gone. Therefore if the roof leaks or boiler bursts you may be forced to use expensive credit cards instead.
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