| The question of whether to over pay your mortgage | | | | put the borrower in control of their mortgages. |
| or accept a low return on your money invested is an | | | | It makes financial sense! |
| importance issue in today's economic climate. As a | | | | It makes real financial sense for mortgage borrowers |
| money saving expert, I will explain how you can save | | | | to make even small monthly overpayments, as these |
| thousands of pounds by over paying your mortgage | | | | overpayments can add up to a large difference over |
| and why it is more tax efficient than saving money in | | | | the lifetime of the mortgage. By making an |
| the bank or building society if you have a mortgage. | | | | overpayment you will reduce the amount of the |
| As the Bank of England drives down interest rates in | | | | mortgage outstanding and if you continue to over pay |
| an attempt to control deflation; savers are left earning | | | | you will also reduce the term of the mortgage. By |
| a pittance from their savings whereas some mortgage | | | | reducing the term of the mortgage you will save |
| borrowers are saving hundreds of pounds in reduced | | | | enormous amount of money in interest payments that |
| mortgage payments each month. Borrowers on | | | | you would have otherwise paid if you had not made |
| Tracker rate and those on the Standard variable rate | | | | any overpayments. |
| mortgages have seen their mortgage costs drop | | | | Better Interest rate than a Savings account |
| drastically in some instances and they now find | | | | Many people are overpaying their mortgages due to |
| themselves with extra money in their pockets. The | | | | the low returns received from their savings accounts |
| Co-operative Bank Mortgages department recently | | | | and the higher costs of their mortgages. If you are |
| revealed that they had seen a 50% increase in | | | | committed to a mortgage with an interest rate of say |
| mortgage borrowers making overpayment into their | | | | 5% and your savings account is offering you 1%; then |
| mortgage accounts. | | | | it is advisable to overpaying your mortgage debt that |
| What the Co-operative Bank discovered | | | | has the higher interest cost. The sooner you can pay |
| The Co-operative bank conducted a poll of 1000 adults | | | | off a higher interest rate debt the cheaper the debt |
| from their bank to expose some of the reasons why | | | | becomes and the more money you will have saved. |
| borrowers were overpaying their mortgages. It | | | | Tax efficiency |
| revealed that 80% of those polled declared their | | | | By far the best reason for paying off your mortgage |
| reason for overpaying their mortgage was due to low | | | | rather than saving the money in a savings account is |
| returns on their savings accounts; some 37% choose | | | | that you will not pay any tax on the money you pay |
| to pay extra money off their mortgage due to the | | | | off on your mortgage. Where as the money you earn |
| reductions in the base rate; whilst 24% of borrowers | | | | on your savings account is taxable at 20% at source |
| were choosing to disregard the recession and spend | | | | by Inland Revenue and if you are a higher tax payer |
| their surplus money on clothing and holidays. The | | | | than it will cost you a further 20%. So for a higher rate |
| Co-operative bank said it appeared that customers | | | | tax payer the benefits of overpaying your mortgage |
| were recognising the benefits of making overpayment | | | | are substantial more cost effective and it is just as |
| in light of the historical low interest rates being paid to | | | | cost effective for lower rate tax payers. |
| savers at present. | | | | It's not in your Banks Interest for you to overpay your |
| Flexible Mortgages are the Future | | | | mortgage |
| Some mortgage lenders will not allow overpayments, | | | | It's not in a banks interest to see its borrowers |
| while other lenders would allow a maximum of five or | | | | overpaying their mortgages. Banks make money from |
| ten percent overpayment each year. Other lenders like | | | | the interest you pay them each month. So they do not |
| the Co-operative bank and the Northern Rock will | | | | want you to pay your mortgage off any quicker as |
| allow their borrowers to overpay larger amounts off | | | | they will lose money. This is possibly one of the main |
| their mortgage balances each year. In the case of the | | | | reasons that many mortgage lenders have limits on |
| Northern Rock they will allow the borrower to overpay | | | | the amount of overpayments they will allow. Don't |
| the whole amount to within £1 of paying off their | | | | ever believe your bank cares about you they only |
| mortgage without incurring any penalties for making | | | | care about satisfying the needs of their shareholders. |
| large overpayments. These types of mortgage | | | | The longer the duration of your mortgage the more |
| accounts are called 'flexible mortgages' as they allow | | | | interest you will pay the bank; for example a twenty |
| the borrower to overpay, underpay and borrow back | | | | five year mortgage will earn the bank more money |
| the overpayments already made. Flexible mortgages | | | | than a twenty year mortgage. |