With interest rates at an all time low and contractor mortgage payments eating up less of the household disposable income, now seems a good time to reduce the mortgage burden.
A lot of people believe their mortgage is a 25 year debt and nothing they do will change that. Actually, this is not necessarily true. Making mortgage overpayments increases the amount of equity in a property and allows borrowers to get much more competitive deals if they are moving home and need a new mortgage. Furthermore, and maybe more importantly, mortgage overpayments save you money in the long run and can reduce your mortgage term.
The majority of lenders only allow you to overpay up to 10% of your mortgage each year but if you can afford to do so, you can considerably reduce your overall debt.
There are also some great deals around for borrowers looking to take advantage of low interest rates.
Yorkshire Building Society has a two year tracker at 2.25% but applicants did need to put down a deposit of 25% and pay an arrangement fee of £995. Natwest offers an even better two year tracker mortgage at 2.19% but it is only available to people with a 40% deposit plus £999 fee.
These tracker deals look like good value for money but it is important to remember that a tracker mortgage tracks the Bank of England base rate. Once that starts increasing from the current 0.5%, tracker mortgage repayments will also increase.
Selecting the right mortgage is something of a gamble, especially when we have no idea what will happen with interest rates. Fixed rate products do give borrowers the peace of mind of knowing exactly what their monthly repayments will be, but will a fixed rate work out as better value for money in the long run?
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