Many homeowners prefer to take advantage of low interest rates to repay their mortgages. This is because with low interest rates they can now put the extra money in other investments with the hope that the returns from these investments will be big enough for them to pay the mortgages easily and cheaply. In some cases, there might be long term deals available at less than 3pc; this is quite advantageous for people who have these deals.
Overpaying your mortgage has several benefits however, it is advisable for anyone who has other expensive forms of debt for example store or credit cards, to pay them off first. When an individual decides to take advantage of low interest rates to overpay the mortgage, this will be beneficial to him or her as they are able to pay lower interest and therefore save more money.
In addition to this, it is advantageous for one to save interest rather than earn it as they do not have to pay income tax. According to a research by Santander, one in three house loan holders is overpaying the mortgage, paying off a total of £9bn a year. In the scenario where you overpay by £200 a month a mortgage of £100,000, which was to be spread over a 15-year term on a standard variable rate of 3.89pc, you would be able to finish off the debt earlier and save an impressive £9,622 in total interest.
To avoid any complications, one should first check their mortgage terms and conditions before they make any overpayments as most lenders will allow overpayments up to a certain amount but others will not allow any overpayments. If you take a low fixed rate mortgage, it is not advisable to overpay but rather you can look for other ways of paying the debt.
In addition, you can get a five-year fixed-rate mortgage at 2.85pc from Yorkshire Building Society that is available for up to 75percent of the value of your property or a slightly better rate of interest from a market-leading fixed-rate savings bond from Aldermore Bank, which pays 3.17pc a year over five years. However, the actual return is likely to be low due to income tax.