Strategic attack on the capital

IT USED to be a sort of macho game. Mortgage money was dirt cheap, especially after tax relief. Interest rates were often lower than the rate of inflation. You loaded yourself up with as much debt as the lender would allow, confident that in a few years' time your property would shoot up and give you a big profit.

Today things are different. Mortgagees are being squeezed by nearly pounds 50 extra per month compared with repayment levels in April last year, and worse could be on the way. Mortgage money is no longer cheap.

People can take action to reduce their exposure, however. Many do not realise they can save thousands of pounds by paying off mortgage capital ahead of schedule. With tax relief on eligible mortgage interest now reduced to just 15 per cent, early repayment of capital makes sense - pounds 5,000 left in a building society at 5 per cent will earn pounds 250 a year, or pounds 187.50 after 25 per cent tax. If that pounds 5,000 were used to pay off part of a mortgage at the current standard rate of 8.35 per cent net, annual repayments would fall by pounds 417.

Borrowers may opt to reduce the term of the loan or the size of monthly repayments. Early capital repayment is possible with repayment and endowment mortgages, although in the case of endowments it would mainly be of use to those seeking extra bonuses from their endowments at the end of the term.

If you do want to pay off part of your mortgage, it's not always straightforward, unless you have a standard variable rate loan. Lenders offering mortgages at fixed or discount rates penalise early repayment of capital, not only during the term of the fix or discount, often up to five years, but also in an ensuing penalty period. (National & Provincial is one of the few which allow limited capital repayment during the life of fixed-rate and discount mortgages. Payments can be made of up to pounds 1,000 a year, on a yearly or monthly basis.)

With this in mind, John Charcol, the mortgage adviser, has launched fixed-rate and discount products that offer greater flexibility as well as competitive rates. The two-year discount mortgage at 5.55 per cent, which includes a 2.95 per cent discount, allows for repayment of up to 20 per cent of the original advance, without penalty, in each of the first two years. The two-year fix, at 5.95 per cent, permits repayment of up to 50 per cent of the loan each year, from the beginning of year three. Ian Darby, marketing director of John Charcol, said: "This sort of product will be especially useful for borrowers who have part of their salaries paid in commission, or those with profit-related pay or bonuses awarded at certain times of the year. People with Tessas maturing in January could put their money to good use repaying capital against these mortgages."

The Yorkshire Bank's Flexible Payment Mortgage has a radical approach. Maximum term is 25 years, but customers are encouraged to scale up repayments annually by 1.5 per cent. This, the bank calculates, will save more than six years and pounds 19,000 on a pounds 50,000 mortgage. Borrowers may also reduce payments if they hit a bad patch.

Yorkshire also offers a choice of weekly instead of monthly payments, so customers, in effect, pay a 13-month year. This can reduce a pounds 50,000, 25-year mortgage by nine years and three months, and save nearly pounds 29,000 in interest at current rates. The snag is that there are no tempting discounts or low fixes at the start - all mortgage loans are at the standard variable rate.

As a general rule, borrowers who wish to pay off bits of their mortgage early should make sure the lender realises this is their intention. Unidentified sums will otherwise be kept on the account simply as an advance on repayments, and customers will not be credited with interest on them until the end of the lender's financial year.

Lenders have varying criteria for treating extra payments as immediate reductions in mortgage debt, and recalculating the interest due. Cheltenham & Gloucester may charge to credit sums less than pounds 1,000. Alliance & Leicester and Woolwich ask for minimum payments of pounds 500. Nationwide wants pounds 500 or three times monthly payments. Leeds Permanent has a pounds 100 minimum.

Halifax does not ask for a fixed amount. "We don't recommend paying back less than pounds 500 at a time, though," a spokeswoman said. "Under pounds 500 it takes pennies off monthly repayments; over that it starts taking away pounds. Borrowers are often better off putting their money into a savings account, until they can muster that sort of sum."

One thing to check is the date the money is credited against the capital. Halifax, Leeds and Alliance & Leicester credit the same day and recalculate interest payments from that point. At Nationwide, however, the money only goes in at the end of the month; Cheltenham & Gloucester waits until the beginning of the following month.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
Small winemakers say the restriction makes it hard to sell overseas
food + drink
Arts and Entertainment
A comedy show alumni who has gone on to be a big star, Jon Stewart
tvRival television sketch shows vie for influential alumni
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
News
Clare Balding
peopleClare Balding on how women's football is shaking up sport
PROMOTED VIDEO
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Sport
premier leagueMatch report: Arsenal 1 Man United 2
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
News
i100
Sport
Jonny May scores for England
rugby unionEngland 28 Samoa 9: Wing scores twice to help England record their first win in six
Life and Style
fashionThe Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Arts and Entertainment
Jerry Hall (Hand out press photograph provided by jackstanley@theambassadors.com)
theatre
Sport
Tony Bellew (left) and Nathan Cleverly clash at the Echo Arena in Liverpool
boxingLate surge sees Liverpudlian move into world title contention
Voices
Neil Findlay
voicesThe vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Life and Style
food + drinkMeat-free recipes and food scandals help one growing sector
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible
    Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

    Look what's mushrooming now!

    Meat-free recipes and food scandals help one growing sector
    Neil Findlay is more a pink shrimp than a red firebrand

    More a pink shrimp than a red firebrand

    The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
    Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

    Oeuf quake

    Bill Granger's cracking egg recipes
    Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

    Terry Venables column

    Wayne Rooney is roaring again and the world knows that England are back
    Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

    Abject leadership is allowing football’s age-old sores to fester

    Those at the top are allowing the same issues to go unchallenged, says Michael Calvin