Interest rates are creeping up, making that monthly mortgage millstone hanging round our necks even heavier. There have been several rises in recent months and yet another is widely expected some time this spring.
Homeowners not currently on a fixed rate mortgage deal are starting to feel the pain of these cumulative rises, but there is a way to beat the system and cut the amount of money you pay your bank for your mortgage.
The answer is to spend more on your mortgage. This may sound mad, but by paying more off your mortgage each month you can dramatically cut the amount you pay to the bank in interest charges over the life of the loan, saving thousands and cutting the term of your mortgage by years.
According to Sophie Neary, product director for BeatThatQuote.com, even small monthly payments can stack up over time. "Even an extra payment of £50 a month really adds up over the typical 25-year term, saving around £12,000 and paying off your mortgage almost four years early."
Making overpayments of as much as you can sensibly afford enables you to make sure you have the cheapest mortgage possible.
Many lenders offer deals that allow you to make overpayments without penalty, typically of up to 10% of the value of the loan. Terms vary as to how many overpayments you can make in a year, although many lenders limit this to two overpayments a year.
If your current lender doesn’t allow you to make any overpayments, you should seriously think about switching. Punch in your details at BeatThatQuote.com and in moments you will learn which lenders allow extra payments without penalty.
Beware of potential pitfalls, however. You need to weigh up the cost of switching mortgages. You are unlikely to get the best deal if your are currently tied into a deal that will charge you a penalty to exit.
Stiff mortgage arrangement fees can also eat away at the savings made from early repayments. The rule to remember is that the more you can overpay by each month the more likely you are to save in the long run.
Remember also that if you opt for a fixed rate deal that allows overpayments and then interest rates drop (well, you never know...) you will not benefit.
If you are buying or already have an overseas property on mainland Europe, remember also that thanks to lower European mortgage interest rates you may be able to get a better deal by remortgaging your overseas property and paying off a chunk of your UK mortgage.
If you don’t have an overseas property though, the message is clear: In a time of rising interest rates if you can endure the short term pain of overpayments you’ll enjoy a long term gain potentially worth thousands of pounds and early freedom from the burden of your biggest financial commitment.
