As previous articles have shown, there are currently a lot of people with a mortgage who are making overpayments on their mortgage. As the figures demonstrate, by overpaying your mortgage you can save thousands of pounds and shave years off your mortgage, and Lloyds TSB has noted that anyone who tooka variable rate mortgage out with Lloyds TSB in 2007 and continued to maintain their existing monthly mortgage repayment at the same level as it was in December 2007 would have decreased their mortgage term by 11 and a half years!
However, with the Bank of England’s base interest rate currently at 1.5 per cent and estimated to be cut even further today to 1 or even 0.5 per cent, is it worth it?
Naturally, the answer does somewhat depend upon your individual circumstances and the mortgage you’re in.
Those with other debts at a higher interest rate, such as credit cards or loans, would be best placed to pay those off first. Once they’re cleared, you need to see what the terms of your mortgage are with regards overpayment as some lenders restrict how much you can overpay. Check when the mortgage lender applies the overpayment to your mortgage and applies interest because if it is not done on a daily basis, then your overpayment should be timed to your best advantage – this is an important point and one that comes up on the CeMAP syllabus. Find out if the overpayment is still accessible or not, because you don’t want to tie up all your money in case you need some urgently.
There are a lot of factors to be considered so check all these things out and balance up your options before deciding.