New research from the Co-Operative Bank has revealed that homeowners are making overpayments on their mortgages while interest rates are low.
Britons are using the low Bank of England base rate to their advantage by overpaying on their mortgages, according to a new report.
The Co-operative Bank released figures showing that there has been a 50 percent jump in the number of its customers who are making higher than necessary mortgage repayments. Eight out of ten of these said that they were doing so because saving is currently unattractive.
Because the Bank of England has reduced its base rate to a historic low of one percent, most lenders have also followed suite and cut interest rates on their savings accounts. This means that consumers putting money aside offers a poor return, so cash can be better spent on paying off mortgages.
"It would appear that with interest rates now at an historic low, customers are recognising more than ever the benefits of making overpayments," said Terry Jordan, head of mortgages at the Co-op. "Providing their mortgage allows the flexibility to overpay, at the current time it can make real financial sense for customers to make even small monthly overpayments, as these can really add up to a large difference over the lifetime of the mortgage."
According to the bank, if a person who has a 25-year mortgage of £100,000 with a five percent rate makes monthly overpayments of £50 they will pay off their loan 3.6 years early. This could end up saving them £12,000.
