MORTGAGE payments will be something many people will dedicate considerable time thinking, with the average mortgage term spanning 25 years.
Getting a mortgage can provide the pathway to becoming a homeowner, or buying a dream home. Those who do have a mortgage may look for ways in which they can reduce the amount of interest they need to pay on the loan.
According to research by Comparethemarket.com, UK homeowners could avoid nearly £6,000 in interest by making overpayments on their mortgage.
The price comparison giant has found that homeowners on fixed rate mortgages could cut costs by £5,895, and reduce their term by more than three years.
However, research shows that more than half of homeowners (56 percent) never overpay on their mortgage.
Meanwhile, a fifth (19 percent) who do overpay, have not taken a holiday abroad in order to afford overpayments.
The coronavirus pandemic is having a devastating impact across the world, with more than 41,698 people sadly having died in the UK, government figures report.
The COVID-19 crisis is also having an economic impact.
Mark Gordon, Director of Money at Comparethemarket.com has shared his insight on the mortgage market during the outbreak.
“Before the coronavirus pandemic, the latest [Bank of England] data suggested how strong the property and mortgage markets were, with mortgage approvals at a six-year high,” he said.
“Within the space of a few weeks, this stance has completely changed.
“With in-person valuations and property viewings unable to take place, we have seen some lenders stop offering products to new customers looking for higher loan to value deals, so that they can focus on supporting their existing customer base and organise mortgage payment holidays.
“The government also took the unprecedented decision to stop all house purchase transactions, in effect, freezing the market.
“The uncertainty of Brexit lingered over the housing market for years. However, we’re confident that once this crisis is over we will see, hopefully, a quicker bounce back.
“While it is going to be a tough and bumpy road to get there, we must remember the foundations of the market remain strong.
“While remortgaging isn’t at the forefront of people’s minds, understandably, for those coming to the end of their fixed rate mortgage deal, it could be worthwhile looking around online to see what deals are still on offer and whether you could pay less.
“Those on tracker mortgages, for example, are benefiting from the latest Bank of England base rate cut to 0.1 percent – a record low in its 325 year history – with certain lenders now passing these savings on to customers.”
Cassie Stephenson, from free, online mortgage broker Habito, has addressed the topic of mortgage overpayments.
“Agreeing with your lender to deliberately pay more towards your mortgage, to clear your mortgage faster, can be very good for your bank balance,” she said.
“Overpaying in this way can knock several years off your mortgage, save you thousands of pounds in interest, and help you become mortgage-free faster.
“Most lenders let you overpay by 10 percent of the mortgage every year. You can see if yours does this by checking your mortgage documents.
“You can overpay either as one lump sum or by increasing your payments a little each month.
“Doing it as one lump sum might be preferable at a time like this, because it gives you more flexibility in case you need those cash savings later on, for something urgent.”
However, Ms Stephenson warned of some watch-outs to be aware of.
She said: “But make sure you speak with your lender to do this and tell them explicitly that the reason you’d like to overpay is to reduce your mortgage term.
“Otherwise, they might keep your term the same, and use your lump sum overpayment to reduce your monthly payments.
“The other big watch-out is for any early-repayment-charges or ERCs – this is a penalty fee applied if you go over the maximum repayment amount in the year, so check your terms & conditions for your specific lender’s rules on this.
“And like always, make sure you’ve got the best existing mortgage deal, on the lowest interest rate possible, before you start overpaying. That way any extra money you overpay will go towards reducing your mortgage, not just lining the banks’ coffers.”