One in five mortgage holders are currently overpaying their loan each month

wotsthat

A recent Santander survey suggests that 1 in 5 mortgage holders are actively overpaying their mortgages.

The lender has researched how many borrowers have responded to the record low interest rates, and the results are encouraging. The survey suggests 2.5 million people overpay around £181 every month, meaning they collectively pay an additional £455m on top of their standard mortgage repayments on a monthly basis.

Another 6 per cent tend to make a one-off overpayment once a year, while a further 9 per cent have overpaid once in the past 12 months.

Obviously it doesn't always make financial sense to overpay a mortgage but does seem to indicate that homeowners are being less 'indebted and frightened' with every month that passes.

http://www.independent.co.uk/money/mortgages/homeowners-are-urged-to-overpay-their-mortgage-while-interest-rates-are-still-low-8958297.html

michaels

Got to be positive news for the 'debt = evil' crew although what is says about financial education that people overpay more when rates ar low I'm not sure. Most things in life you buy more when they are cheap and less when they are expensive, mortgage debt seems to go the other way....

BigAunty

That's a positive sign in some respects.

However, I understand that there are around 205,000 owners claiming Support for Mortgage Interest, including around 100,000 receiving Pension Credit (i.e. the public purse is supporting property owners who reached retirement age before being able to clear the balance of their mortgage).

So there are two extremes to mortgage debt - those who can afford to overpay and those who are just treading water, subsidised by the taxpayers.

katejo

I am overpaying but in the true sense of the word it doesn't count as overpayment. I am only paying the approx amount which I would have to pay if the rates returned to about 5%
It is dangerous to get too used to having extra cash available and then find that you struggle when the rates go back up.
I also want to reduce the balance as much as possible in preparation for an increase in interest.
If I had other debts to pay off, I would do things differently.

Loughton_Monkey

Doesn't apply to all people, I'm sure, but in volatile times like this, some of the public fall into some or all of the following 'traps'.

• Paying off mortgage at miniscule rates rather than putting spare cash into something more lucrative.
• Reduce contributions to pensions, or worse, stop contributing at all.
• Change long term pension funds into 'safe' investments to avoid risk.

Mallotum_X

I have been overpaying my mortgage for a few years now, only got a few months left to run.

The main reasons behind this was long term financial security, whilst it may have been more beneficial to use the extra money on something else there is a nice feeling that the place is mine, and no matter what other choices I want to make there wont be a mortgage bill to pay each month.

We did weigh up alternatives to overpaying, but with some risk at work we felt it the safe thing to do. Perhaps in hindsight we could have done something more adventurous but ultimately the house will be paid off and we will be mortgage free in our mid 30s.

Its a nice thought that we will have all that spare money each month in just a few months time. Exactly what we do with it time will tell.

calicocat

I'm over paying mine. I could probably put it to better use but i'm one of those that gets scared of risk, I also want that security of owning the house. My job security isn't looking great and I could find myself going into different pay in 2 -3 years so I want a small a mortgage as possible by then ,or paid off if I can do it.

Wheezy_2

Overpaying also.
On a fix @ 2.79% currently, we'd be looking a long time long to find a (risk free) investment at a rate significantly higher that that.

Thrugelmir

BigAunty wrote: »

So there are two extremes to mortgage debt - those who can afford to overpay and those who are just treading water, subsidised by the taxpayers.

Santander estimate the average overpayment at £181 per month. So does indicate that there are extremes. Around 90% of NRAM's 550,000 mortgage holders have no structured repayment vehicle for their mortgage. When interest rates eventually rise there will be plenty of people who will be financially stretched.

LydiaJ

michaels wrote: »

Got to be positive news for the 'debt = evil' crew although what is says about financial education that people overpay more when rates ar low I'm not sure. Most things in life you buy more when they are cheap and less when they are expensive, mortgage debt seems to go the other way....

But buying more when it's cheap and less when it's expensive refers to things that you buy one of now, and may or may not buy two, one or none at all of next year. Not things like mortgages where you get one and are then stuck paying for it for years.

People overpay when rates are low because that's when they can. These are people who have listened to the advice to borrow only as much as they could afford to repay at a significantly higher rate. Thus they have spare money in the monthly budget at present. If rates were high, they'd have no spare cash for overpaying.

They are also the sort of people who concern themselves with the unknown future and the possibility that rates may rise, and they think to themselves that when rates may rise they have no idea how far they will rise, so perhaps it would be as well to minimise the amount owing on the mortgage, so as to be in a better position when they do.

As calicocat points out, people also overpay mortgages when job security is tenuous. Today's ultra-low interest rates are part of a wider picture that leaves people in some walks of life feeling very far from secure (although many people in other jobs are feeling fine about their jobs, of course).

They probably also look at how pathetic savings rates are, and realise that overpaying their mortgage gives them a better rate of return than any account they could put the money, especially if they are higher rate taxpayers. Of course, they might do better investing in something that could go down as well as up, but then again they might not. If they're on the risk-averse half of the financial spectrum, overpaying the mortgage makes a lot of sense (as long as it's not part of a disastrous pension-ignoring problem, of course).

If I were a "normal" homeowner with a "normal" mortgage, I would be overpaying it. Since my circumstances are more complicated than that, it doesn't make so much sense for me, but in many ways I think I'm the same type of person (in terms of financial attitudes) as many of the people who do overpay.

Loughton_Monkey

In my day, the Interest-Only Mortgage was 'king'.

In those days, the Endowment Policies produced really good returns. So although I admit is was never my initial strategy, it turned out the obvious thing to do, to just (a) Spend the proceeds of the endowment on other things (e.g. home improvements, Jaguars, new furniture....), (b) Let the mortgage itself just inflate away, (c) just suffer the range of interest rates along the way, and finally (d) pay off the mortgage out of petty cash.

OK, endowment policies are dead, but long term equity investments generally exceed inflation, and mortgage rates, so pay the extra cash into good investment funds, pay the interest on the nail, and use the results of the investment to pay down the debt much later on. This strategy also gives a cushion against anything unforseen.