Many people trying to reduce their mortgage debt
According to a recent report more and more people are now trying to reduce their mortgage debt by overpaying on their mortgages as and when they are able to.
Whilst the Bank of England has reduced the base interest rate dramatically over recent months, and government officials have made it clear that they hope to increase consumer spending and revive the economy by reducing interest rates so that consumers have more cash, many are deciding to avoid the temptation to spend the extra cash that they have, and are choosing instead to pay extra on their mortgage debt to try and get it reduced as much as possible.
Officials claim that thousands of homeowners are now overpaying on their mortgages to try and cut their debt, and following the latest base rate cut many others are expected to follow suit.
Some are doing this by asking their lenders to keep repayments on the mortgage as they were rather than reducing the repayments in line with the base interest rate reduction. For many this could shave thousands of pounds off the debt in terms of interest and could result in the mortgage loan being paid off far earlier.
One official from Lloyds TSB confirmed that the trend of overpaying on a mortgage was becoming more popular, and she said: ‘Yes, clearing mortgage debt is the fashionable thing for homeowners to be doing. Many borrowers are worried about the uncertain economic backdrop and turned off by the low rates available on most savings accounts, so they are doing the sensible thing and overpaying.’
Another industry official said that overpaying was a good thing, and that it could really benefit the borrower in the long term, stating: ‘Not only do borrowers reduce interest costs and the term of their mortgage, but overpaying makes great sense when house prices are falling. By paying down debt, it means the size of the outstanding loan as a percentage of the home’s value does not creep up to such an extent that when they come to remortgage, they are excluded from the most attractive loan deals.’
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