Homeowners are urged to overpay their mortgage while interest rates are still low
Low interest rates are encouraging borrowers to clear their home loan, but more should do so, says Simon Read
One in five mortgage holders are currently overpaying their loan each month, but more should get into the habit, experts believe.
Phil Cliff, director of mortgages at Santander UK, said: "If you overpay on your mortgage, you will pay less interest over the full term, so it's a good thing to do if you can afford to."
The lender has researched how many borrowers have responded to the record low interest rates, and the results are encouraging. The survey suggests 2.5 million people overpay around £181 every month, meaning they collectively pay an additional £455m on top of their standard mortgage repayments on a monthly basis.
Another 6 per cent tend to make a one-off overpayment once a year, while a further 9 per cent have overpaid once in the past 12 months.
But Jonathan Harris, director of mortgage broker Anderson Harris, said even more borrowers should think about overpaying their mortgage.
"Most lenders will let you overpay by up to 10 per cent of the mortgage amount each year, so it makes sense to take advantage of this while interest rates are low, particularly if you have savings sat in an account not earning much in the way of interest," he said.
"Overpaying saves you interest in the long run and reduces your mortgage term, ensuring you clear your mortgage debt more quickly. It will also reduce your loan to value, making it easier to remortgage when the time comes."
Ben Thompson of the Legal & General Mortgage Club said: "It's good to see mortgage borrowers taking a sensible approach when it comes to overpaying on their mortgage. At the moment interest rates are at historic lows. With the base rate remaining unchanged for coming up to five years, and initiatives like the Funding for Lending Scheme keeping the costs relatively low for lenders, there has never been a time when mortgages have been cheaper.
"However, that will inevitably change. Speculation continues about exactly when we will see the Bank of England increase interest rates," Mr Thompson added. "Many commentators have suggested that 2016 looks most likely. But it is clear that the Bank of England will leave it as late as possible as they seek to unwind quantitative easing.
"Borrowers should take the opportunity to build an equity buffer for when base rate moves and inevitable interest rate rises follow. This will help to insulate against any potential interest rate shocks."
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