First Direct recommends overpaying on mortgages

Monday, 28 November 2011 03:47

Homeowners could be better off after the term of their mortgage if they overpay instead of adding to their savings accounts.

This is according to offset mortgage provider first direct, which issued figures to show Britons could benefit from tens of thousands of pounds if they take this route.

For instance, if a buyer took out a £100,000 mortgage at a current average rate, paid the minimum off and saved £300 separately, they would be £42,909 worse off after paying of the loan completely.

However, if they overpaid £300 on the mortgage instead, they would not only pay the lender back after 12 years, but they would save £23,903 by paying back £123,084 rather than £146,988 over 25 years.

Senior mortgage product manager at first direct Richard Tolchard said: "However, that is not to say that we shouldn't save, it is always advisable to have a sum set aside for a rainy day.

"An offset mortgage offers the best of both worlds; offering easy access to your savings while still helping you to reduce the overall interest you pay and ultimately, the term of the loan."

Last month, first direct cut the rates on more than a third of its mortgage products.

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