Mortgage Overpayments

by Mark Johnston

Monthly mortgage payments are a ‘given’ in most peoples mind, with borrowers accepting they will have this debt for at least 25 years. Although overpaying the mortgage each month can save large sums over the life of the mortgage.

With a mortgage being the most long term financial responsibility anyone has, anything that cuts it down in years or decreases the overall amount borrowers will have to pay back is always a good thing.

Some borrowers have taken advantage of low interest rates to pay back more home loans while mortgage costs are low.

Figures show that mortgage borrowers paid back more than £24 billion to lenders in 2010, this amount is the highest since records began in 1970.

Borrowers returned £7 billion in the first 3 months of the year, a record amount during any quarter.

The reality is that most mortgage borrowers however do not overpay their mortgages as their monthly repayments are usually at the top end of their budget and any ‘spare’ cash they do have is used for other purchases or to pay off other debts.

Many mortgage advisers are suggesting that borrowers who have seen their rate fall and therefore reducing their monthly repayments should seriously think about keeping their payment at a more ‘standard level’, such as them continuing to pay the original monthly amount. They suggest this as the current situation will not last forever and rates will eventually rise causing a huge ‘shock’ to many borrowers. It would also in many cases allow borrowers at the moment to overpay their mortgages by hundreds of pounds.

Although most lenders will only allow a certain amount of overpayment each year, usually around 10% of the overall mortgage amount. If borrowers are have a flexible mortgage the 10% rule will probably not apply. In both case though early redemption fees are usually built into the mortgages.

In July 1998 to March 2008 many home owners borrowed an extra £328 billion against the rising value of their homes; this extra mortgage borrowing was used for other things such as cars and holidays. This is known as housing equity withdrawal.

Home owners as a whole have now injected £57.4 billion in to their housing equity, switching the trend from withdrawal.

With monthly mortgage payments being at an all time low at this current time many analysts have also suggested that home owners that are behind on their payment are now more likely to pay off their arrears than 2 years ago.

With household incomes under significant pressure from all sides it appears that borrowers are more determined than ever to do all they can in order to safeguard their homes.

A study conducted by Ascent, the financial agency business of law firm Irwin Mitchell, showed that the amount borrowers are paying off their arrears has increased 7% compared to the same quarter in 2010. This amount has also increased up 43% compared with 2 years ago.

The British Banking Association’s (BBA) latest monthly for 2011, lending statistics show that gross mortgage lending reached £7.6 billion which was lower than July 2010.

In addition to this David Dooks, the British Banking Association (BBA) statistics director said “repayment of loan and overdraft borrowing continues to outweigh new lending”.



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