The Sunday Times - For better savings returns, get clever with a mortgage
If you would like to make more use of your savings without taking any risks with your cash, an option is to get creative with your mortgage.
Overpaying on your loan can significantly reduce the overall cost. You could save more than £30,000 in interest payments on a £200,000 loan.
Aaron Strutt of Trinity Financial, another broker, said: “Mortgage rates won’t be this low for ever. With so many lenders forcing borrowers to take capital repayment deals, it makes sense to overpay if possible. If you do not have a suitable plan to repay the mortgage and you don’t make overpayments, you may find the monthly costs difficult to meet when interest rates rise.
“Making overpayments now may also allow borrowers to remortgage to a cheaper rate in future. Even if you repay 5% or 10% of the mortgage, this may enable you to secure a lower rate because the more equity you have, the better.”
Some deals do not have caps, although this is more common with variable-rate loans. Metro Bank allows overpayments of 20% of the mortgage amount each year on its residential mortgages, which is generous compared with most rivals.
Some lenders have “bullet” repayment systems for wealthier borrowers on interest-only deals. Lump sums written into the contract have to be paid at a certain time in the year.
Strutt said: “Borrowers still benefit from low monthly repayments, but they can make overpayments when they receive bonuses from work, or any lump sum payments they are expecting.”
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