Why Not Reduce The Term Of Your Homeowner Loan?
Over the course of the past few months, those lovely people on the Bank of England’s monetary policy committee have done a great big favour for all those borrowers with a homeowner loan, or mortgage on their house.
Since October last year, the base rate of interest charged on loans has fallen by 3.5 per cent, from 5.0 per cent to 1.5 per cent, the lowest rate in the history of the Bank of England.
Of course, those individuals who opted for a fixed rate on their homeowner loan will not feel any benefit until their current fixed term finishes, but those borrowers with a tracker loan, or a standard variable rate loan where the lender has passed on the savings, will have seen a significant reduction in their monthly repayments.
For borrowers who have other debts through personal loans and credit cards, this presents an ideal chance to repay their outstanding balances early and save money on loan interest, but many people who only have a homeowner loan are simply enjoying having extra cash in their pockets each month.
But by overpaying on their loan to the amount of the original repayment amount, prior to the recent rate cuts, the same borrower could save a large sum of money in interest payments and repay their loan several years earlier than they would previously have done.
For someone who was previously paying £1,000 per month on a homeowner loan, who has benefitted from the full rate cuts, their monthly repayment will now have dropped to below £700, but if they were to continue paying £1,000 per month (assuming that the interest rate will not change for the remainder of the 25 year term) it would be possible to save a staggering £16,000 in interest and also clear the full balance of the loan nine years earlier than expected.
Rather than simply wasting these savings each month, why not overpay on your homeowner loan and you will not only save a great deal of money, but also replace a large proportion of the equity which has been lost in the property due to price reductions over the past twelve months or so. Check with your own lender to see what options are available for your own personal circumstances.
