Keep Track of your Extra Cash

22-Sep-2009

New research shows that there are thousands of tracker mortgage holders who could be taking advantage of the historically low interest rates to pay off their home mortgage loan faster.  Advice website Unbiased has found that 53 per cent of tracker mortgage borrowers surveyed have not taken the opportunity to overpay on their monthly repayments, thereby potentially missing the chance to reduce their mortgage term.

So what are households doing with this extra, unexpected cash?  19 per cent are seeing the money as a boost to their day-to-day living expenses, while 24 per cent are using the savings to pay off other debt and 20 per cent are moving their extra cash to savings accounts.  Two facts stand out as being a cause for concern; that 7 per cent are letting the balance build up in their current account, and that 12 per cent of the total surveyed do not want to overpay for fear that they will be charged by their provider for doing so.

If you are on a fixed rate mortgage deal, mortgage lenders will usually charge an early repayment fee in the first few years of your mortgage term.  However for tracker mortgages, most lenders give you an overpayment allowance of up to 10 per cent more on your monthly repayments.  Beyond this 10 per cent and you may also be liable for a charge, but check with your mortgage provider about this.   

If you have the cash available and you will be charged for going beyond your 10 per cent allowance, consider putting the extra into a savings account that you keep specifically to help you out should mortgage rates increase significantly during your mortgage term.  

Never keep spare cash in your current account, because the interest rates are rarely competitive and you could be missing out on earning valuable interest.  It's also worth noting that the annual allowance for Individual Savings Accounts (ISAs) is increasing in April from £7,200 to £10,200 (and has already done so for everyone aged 50+).    

David Elms, chief executive of Unbiased.co.uk comments: "Tracker and standard variable rate mortgage borrowers have watched interest rates plunge to record lows during this year, presenting an ideal opportunity to pay off their outstanding mortgage more quickly. Such action would enable many thousands of borrowers to take years off their mortgage repayment term, or enjoy a greater level of repayment comfort down the line, should the economy take longer to recover.

"Our research suggests most tracker borrowers are not taking this action, however we're encouraged by the large number who are using their repayment savings to erode their more costly credit card and personal loan debts.  If you are confused about how to best manage your mortgage and take advantage of low interest rates, professional and personal mortgage advice can make a clear difference. Only a whole of market mortgage adviser will be able to advise borrowers on the best deal for their circumstances."

To speak to an experienced mortgage adviser from the SimplyFinance network, simply complete our short mortgage form, and someone will be in touch shortly to talk you through your options.