Overpay Your Mortgage

by Mark Johnston

In these ‘money saving’ times it is surprising how few people concentrate on the biggest financial burden they are ever likely to have, their mortgage.

Monthly mortgage payments are often viewed as a given with borrowers accepting that they will have this dept for at least 25 years and there is nothing they can do about it. This is not always the case, with the banks base rate at 0.5% it has provided a significant boost for borrowers who would like to overpay their mortgage but have felt unable to do so.

Overpaying a mortgage can increase the amount of equity in property thus allowing borrowers to access far more competitive deals when looking for new mortgage finances and it can also help save large sums over the life of the mortgage.

Borrowers however should remember that most lenders will only allow a certain amount of overpayments every year, typically 10% of the overall mortgage amount.

If overpaying mortgage loans are not possible, borrowers looking to make the most of low interest rates at the moment have several competitive options.

The Yorkshire building society offers a 2 year tracker until September 2012 which has a rate of 2.25%, applicants need a 25% deposit and a £995 arrangement fee is payable. With a bigger 40% deposit the Natwest is offering a 2 year tracker at a rate of 2.19% with a £999 fee.

 If there was a cast iron guarantee that interest rates would not rise every borrower would opt for a tracker deal.However with most borrowers on a tight monthly budget at the moment, a fixed rate deal is the most sensible option at the moment.

There are still competitive fixed rate deals to be found. The HSBC offers a long term fixed rate mortgage for 5 years with a rate of 3.95%, although borrowers will need a 40% deposit with a fee of £599, another deal for a 40% deposit is from Santander who offer a 2 year fixed rate deal at 2.85% although the fee is a staggering £1,995. Borrowers who only have a deposit of 25% could look at the Leeds building society who offer a 3 year fixed rate at 3.65% with a fee of £999.

Opting for a fixed deal gives borrowers all important peace of mind that regardless of the interest rates they can always afford monthly repayments. Although in 4 years time it might be frustrating that borrowers could have paid less with a tracker, it is a gamble most borrowers just cannot afford to take. Director General of the council of mortgage lenders, Michael Coogan says “What is important is lower interest rates feed through to lenders costs”.

When the base rate does rise it will do so very slowly however head of economic and market analysis at Nationwide, Mark Saddleton had a note of caution for the future saying that “…..When interest rates rise a lot of households will have significant difficulties in repaying their mortgage”.

At some point the bank rate will need to rise and the monetary policy committee (MPC) are watching for any signs of a pick up in domestically generated inflation and will take action as soon as it is appropriate to do so. Sir Mervyn King governor of the bank of England warned that the UK faces at least another 3 years of economic pain before recovery begins.

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