Overpaying mortgage

OPENSPACES

Given that a problem with the UKs economy is the level of public and private debt, why do mortgage lenders discourage overpayments? Most set a 10% limit. Surely the earlier people can pay off their mortgage the better. It may well encourage them to sell and buy a bigger house and therefore stimulate the housing market. Does anyone have a view on this please

ashe

Because overpaying your mortgage costs them a massive amount in interest over the life of the mortgage. Average joe doesn't realise what a £100 a month payment does to their interest over the life of the mortgage

OPENSPACES

But surely this is compensated by the extra money which they get in advance and can loan to somebody else?

Nebulous2

Lenders borrow the money they lend to you on the money market at the current rates. They plan how long they need it for and programme it so they make something on it.

People paying back early messes that up.

You're more than welcome to pay back as much as you like if you're on the standard variable rate with most lenders (all?) It's only the special offers that restrict your repayments.

Thrugelmir

OPENSPACES wrote: »

why do mortgage lenders discourage overpayments? Most set a 10% limit.

Only if the product is of a fixed term nature. Variable rate products have no restriction. Lenders are in business to make money. Fixed term mortgages are in essence funded by fixed term deposits. Allowing unrestricted overpayments would allow borrowers to redeem mortgages at will. Thereby reducing profitability and potentially market competitveness.