292014Sep

Be Careful Before Making Mortgage Overpayments

Many of us long for the day when our houses can become mortgage free. The mortgage debt burden is a worry because there is always a risk of losing the home if the payments cannot be maintained.

Thus, if earnings are good, it is very tempting to make early repayments in order to get the mortgage balance down sooner than scheduled. If you have been fortunate enough to be on a cheap tracker mortgage over the past few years, the low base rate has enabled many people to pay off capital simply by maintain their mortgage payments at the same level as before the credit crunch.

However repaying the mortgage early may not necessarily be the right thing to do and before doing so, the following issues should be considered.

  1. Although mortgage debt is usually the largest loan, it is also probably the cheapest form of borrowing. Thus it may not be sensible to repay it early in priority to other more expensive debts. E.g. credit cards.
  2. It is important to maintain at least an emergency fund of savings. Otherwise if all surplus money earned is used to reduce the mortgage, a more costly loan might have to be taken out should a time of adversity arise.
  3. It is getting tougher to get a mortgage because of the new rules introduced this year concerning affordability. Thus if you need to apply for a bigger mortgage in the future after having paid off some or all of your current mortgage early, you may be disappointed.
  4. Some mortgage providers will not permit overpayments particularly if you have a fixed rate of interest without a substantial early redemption charge.

If you would like to review your mortgage options, it is invariably best to take professional advice from a whole of market adviser like Bower Mortgages. An adviser from Bower can explain the advantages and risks associated with changing the payment schedule on your mortgage. If you are on a standard variable rate of interest, a tracker or if your current mortgage fixed rate is coming to an end, the adviser can often help you to secure an attractive alternative deal.


Ref: overpayyourmortgage.com 

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