Low Loan Rates Encourage Overpayments
The base rate of interest for loans and savings has been at an all time low rate of just 0.5 per cent now for almost two years and many borrowers who are outside any penalty periods on their loan are taking advantage of this fact to overpay on their loan.
Many borrowers with a variable rate home owner loan have seen their loan repayments fall dramatically from March 2009, in some cases savings hundreds of pounds every month. Whilst some have used this money to fund their lifestyles through these difficult times, others have used the savings to either repay more expensive personal loan and credit card debt early, or to overpay on their home owner loan.
New research from the advice website, Moneybasics.co.uk, has found that almost one third of people in the UK with a home owner loan have made overpayments over the course of the last twelve months, in order to reduce their outstanding loan balance.
The survey found that around 30 per cent of home owner s have overpaid on their loan during the last year, with around 37 per cent paying at least an additional £2,500 off their loan balance.
Although many people have said that they simply want to pay their home owner loan off early, others have said the main reason for overpayments was due to the prospect of an increase in interest rates from the Bank of England and overpaying now would cushion the blow when loan rates do eventually increase.
Moneybasics.co.uk have said that someone who overpays by £47 per month on a loan of £150,000, at a rate of 4.06 per cent, could save £9,266 in interest payments and reduce their loan term by more than two years.
Someone who overpays their loan by £2,500 per annum, could reduce their loan term by seven years and save a staggering £31,194 in interest payments.
