Homeowners who rent out their spare room for five years and plough the money back into their offset mortgage could knock 29 months off the term of the loan, says first direct.
With students returning to university and house prices remaining out of reach for many, now is the perfect time for offset mortgage holders to rent out their spare room, save money and reduce the term of their mortgage. By using monthly rent to make mortgage overpayments the typical homeowner could shave 29 months off their mortgage and save over £1,028 in interest in just five years.
The Government’s Rent a Room scheme means there are no tax implications for letting a furnished room in your home, up to the value of £4,250 per annum, so homeowners with space to spare could earn up to an extra £354 per month to put towards their mortgage costs.
first direct’s offset mortgage allows unlimited overpayments. By making monthly overpayments of £354 for 5 years on the direct bank’s 65 per cent LTV 3 year fixed rate offset mortgage, currently 3.49 per cent with a £499 booking fee, homeowners would save £1,028 in interest payments and pay their mortgage off 29 months earlier.
Richard Tolchard, senior mortgage product manager at first direct commented:
“As long as all necessary precautions have been taken, having a lodger is a really easy way for homeowners to earn more cash and reduce the term of their mortgage.
“The added benefit of first direct’s flexible offset is that if homeowners need access to the money they’ve overpaid they could redraw up to the original amount of the mortgage borrowing.”
