Research by Barclays has found that 84 per cent of homeowners could be missing out on the opportunity to shave years off their mortgage by overpaying by even small amounts.
The lender is urging those homeowners who are not overpaying to start if they can afford to whilst interest rates – and many tracker mortgage monthly repayments – are still low.
Research conducted with over 1,000 borrowers found that only 10 per cent of homeowners said they are currently overpaying on their mortgage, while just a further six per cent said they planned to start overpaying this year. It also found that 24 per cent said they aim to pay off their mortgage early, with over half of these (56 per cent) saying they hope to reduce their mortgage term to 15 years or under.
The research found the ‘average’ overpayment is currently £200.82, which on an average mortgage of £150,000 over 25 years could see the term reduced by 7 years and 3 months. Even as little as £50 can have a huge impact – an extra £50 per month on the same typical mortgage would reduce the term by 2 years 4 months
Andy Gray, head of mortgages at Barclays, added: “We’ve seen just a modest increase in the amount borrowers are overpaying on their mortgage in the first two months of this year compared to the same period last year. We are still experiencing low interest rates and mortgage affordability is at its best levels for more than a decade so we would urge borrowers who can afford it, to start overpaying now, as putting an extra £100 to their mortgage each month will pay off their mortgage four years earlier and reduce the amount of interest that is paid. Most mortgages allow a generous 10 per cent overpayments per year so rounding your repayments up to a few pounds more a month is a really good habit to get into if you can afford it and will reap its rewards when you are mortgage free years earlier than planned!”
“Even with the reality that interest rates will start to rise at some point, many borrowers are likely to be able to afford a little more than they think. A homeowner on a typical £150,000 mortgage tracking at 2.49 above base rate would see their monthly mortgage payments increase by around £20 a month for each 0.25 increase in base rate. Borrowers will therefore benefit overpaying by as little as £50.
“I’d urge all homeowners to review their current mortgage arrangements to ensure their repayments remain affordable throughout 2011 and beyond and to ensure they have a contingency plan when interest rates start to increase. This could be as simple as remortgaging.”
Homeowners who are reviewing their mortgage arrangements can take advantage of the Barclays Woolwich ‘Great Escape’ package, which allows borrowers with a mortgage of up to 80 per cent loan-to-value to switch their mortgage to Barclays with no application fee, free legal work and valuation and £300 cashback to cover the cost of a borrower’s exit fee[i] for leaving their present lender. Fixed and variable rates are both available.
