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Thursday 29th of January 2009
January 23, 2009

Don’t hoard cash; Overpay your mortgage


by David Masters
Don't hoard cash; Overpay your mortgage

Homeowners should use the Bank of England’s recent rate cuts as an opportunity to overpay on mortgage payments, according to banking group HSBC.

Thousands of pounds worth of interest can be saved by tracker customers if they choose to overpay, HSBC said.

Tracker mortgages follow the Bank of England base rate. Consumers holding a tracker mortgage have seen their mortgage repayments fall dramatically over the past four months.

HSBC, however, recommends that tracker mortgage holders keep repaying their mortgage at the same rate as four months ago.

This would potentially take years off their mortgage term.

“Overpaying their mortgage could reduce its term by years and save them thousands of pounds in interest,” said Martijn van der Heijden, HSBC’s head of mortgages.

HSBC’s advice follows a similar recommendation by moneysupermarket.com.

Louise Cuming, head of mortgages at the price comparison site, said Brits approaching retirement would especially benefit from overpaying their mortgage rather than saving, because of low interest rates.

Meanwhile, Lloyd’s TSB estimates that if rates remain at 1.5% throughout 2009, a consumer who has continued to pay off their mortgage at the same amount since interest rates starting dropping in December 2007 will end up taking 12.5 years off their mortgage term.

Earlier this month the Bank of England cut interest rates to 1.5%, the lowest level in over 300 years.

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