Overpay Your Mortgage, If You Can
With base rates at 0.5% and mortgage rates at historically low levels, we are all getting used to paying low interest payments for our home every month. Sadly, that may not last much longer.
Low mortgage interest rates are great for those who are borrowing, but savings rates are even lower, so money in the bank, whilst always a good thing to have, is actually not doing you many favours at the moment.
Particularly if you have a mortgage.
But why we should we overpay our mortgage instead of squirrelling money away into savings accounts, which are offering little return?
The answer is that interest rates will not remain this low for ever, or even for many months more, in fact.
According to the CBI, for example, the base rate will rise to 1.25% by the end of this year and 2.75% by the end of 2012.
Those are still historically low base rates, but 2.75% is almost six times the current base rate. What will that do to your monthly mortgage payments?
You pay more in mortgage interest than you earn in savings – that is how banks make so much money – so as long as you have a nice cushion of savings already, seriously consider paying more into your mortgage, as long as there are no penalties in doing so.
When interest rates start their inevitable climb, you will be glad that you did make those overpayments now.