by Mark Johnston
It has been two years this month since the Bank of England monetary policy committee decided to drop interest rates to an historical low. In the midst of the financial crisis, the central bank started to drop interest rates sharply over a few months to try and stabilise the faltering economy. Starting in October 2008, the rate dropped half of a percent each month, until in March 2009 the rate hit an historic low of 0.5%. Since then the rate has remained low, allowing many borrowers take advantage of lower mortgage repayments by overpaying their home loan to reduce the outstanding capital.
Over the past two years more and more home owners have realised the potential opportunity of being able to pay off their mortgage quicker. Now almost one in ever three borrowers are overpaying their mortgage by taking advantage of the low Bank of England base rate.
Recent research commissioned on the subject showed that 30% of people had decided to pay back more than they were required to on a monthly basis. Almost 40% of those people had over paid by £2,500 or more. The research also showed that around of the 1,500 mortgage holders questioned had decided to overpay their mortgage so they could pay their home loan off early whilst others had done it to provide themselves a safety net in the future as many lenders now offered flexible mortgages which allowed underpayments to be made as long as overpayments had been made in the past.
Recently lenders like the Co-operative bank have been demonstrating that they are responsible lender by suggesting that their customers pay capital off their mortgage. Since the Bank of England reduced its rates down to the historic 0.5% levels, many borrowers have had the luxury of greatly reduced monthly repayments. Prudent borrowers have used this opportunity to reduce the outstanding capital on their mortgage with the additional spare cash. Whilst others have chosen to spend the spare cash elsewhere.
The Co-operative bank prides itself as a ethical bank and a responsible lender. As such, they have decided to make their customers aware of the benefits of making additional overpayments on their mortgage. They have also facilitated this by allowing their customers to make up to 50% without incurring penalty fees which many other banks and building societies charge.
The banks head of mortgage, James Hillon wants to promote the benefits of making these extra payments and highlight how this can help in the long term financially. Mr Hillon said: “With interest rates continuing to remain at their historic low level, our data shows that customers are increasingly looking to take the opportunity to pay off more of their mortgages.”
At the end of last year the Co-op Bank demonstrated that it was living up to its tag line “good with money” with its fixed rate offerings that have won them the prestigious moneywise best lender for fixed rate mortgage award. With their fixed rate mortgage you know exactly what your monthly repayments will be so budgeting shouldn’t be a problem The Co-op Bank are currently offering a range of fixed rate mortgage periods, from two to a massive ten years for those of you that like to plan ahead and be comfortable with how what your monthly outgoings will be each month. The rates range from 2.95% for two years to 5.49% for the ten year version.
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