Savings and Mortgage: Hand in Hand?
In these tough times wherein paying out the debts is becoming increasingly difficult, any advice on being able to save comes as quite a shock. But money savings is never a bad deal and some extra pains to gain this benefit seems like a welcome option, for almost all.
Mortgage monthly payments are a taken for granted affair in most households and they go on for years to come. A lot of people equate it with monthly payments for insurance such as forces insurance. Usually families go in for over 20 year mortgage periods, and it proves beneficial for the lending agency as well.
However, with the current cut in the Bank Base Rate, the time is ideal for families to coffer up slightly more on their monthly mortgage payouts and infact look at over paying their mortgage debts. While some would flip by listening to this, one needs to bear in mind that the current low levels will not last forever and the interest rates will go up, therefore getting accustomed to a lifestyle which tomorrow may turn into a shock because of higher mortgage payouts is not a good idea.
One of the major benefits of overpaying is that one makes heft savings on the actual interest paid over a long period of mortgage tenure, to the lending agency. By overpaying constantly and reducing the mortgage period, one also frees the property and it starts turning into your own asset. Of course the benefit of earning higher equity personally, on your financial standing, therefore brightening your chances for competitive mortgage rates in a future date is an added benefit.
There are a few things that need to be checked before overpaying to the lending agency. To discourage a majority of their borrowing lot from overpaying, many lending agencies have tied in a 10% payback only, in a year to the mortgage policy. And because of the over payment during the tenure of the loan, the agencies lose the interest that they are supposed to earn over a long period of time, many agencies make the borrowers pay a Early Repayment Charge (ERC). However, borrowers with the flexible mortgage usually do not have the hassle of the 10% ceiling on over payment. There are other facilities such as ‘payment holiday’ that flexible mortgage borrowers can also avail.
The one smart way of savings is also by putting your extra cash into an offset pot alongside your mortgage. Instead of earning interest on your savings and then paying taxes on it, this option gives you to the advantage of reducing the interest on your mortgage; and since this is technically not savings, one does not draw any tax on it.
So while many options are available for borrowers, making up a firm mind on how to go about mortgage management is always a good idea.
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