Product category:
Mortgages / Housing
News Release from: John Charcol | Subject: Mortgages
Edited by the Insidemoneytalk Editorial
Team on 31 January 2008
Bonus time crucial for your mortgage
January payday is the time to start as you mean to go on
Use your bonus now, and pay off your mortgage years early For many people the January payday includes annual bonuses and pay increases
This article was originally published on Insidemoneytalk on 9 Mar 2007 at 8.00am (UK)
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Research by Charcol.co.uk shows that even the most modest overpayment to your mortgage can reduce the term and save you thousands of pounds from your debt during the term of your mortgage.
"January payday is blessed relief for many, as the costly of Christmas and a thread-bare January can be remedied by the last of the January sales.
But resist the temptation to blow your bonus or pay rise, and you can do yourself a favour that will last much longer than this month." Comments Katie Tucker of Charcol.
Further reading
Rise of plus size mortgages should mean costs come down
Commenting on the news today that more and more homebuyers are taking out 100 per cent mortgages, Ray Boulger, senior technical manager at independent mortgage broker John Charcol, said:
New exclusive market-leading lifetime tracker buy-to-let mortgages from John Charcol
Bank Rate + 0.39% @ 85% LTV
"You should always pay off your most expensive debts first, as these are charging you most per pound every month.
Your statements will tell you what rate you are being charged; typically credit cards and store cards are highest, especially if you have taken cash on them; personal loans and second charge mortgages are normally next most expensive, then your mortgage.
Student loans tend to be lowest, as they were set at 4.8% this year.
"Many people receive a 2% increase in salary in line with inflation.
On a £35,000 salary this works out to around £50 extra per month after tax.
If you have had a pay rise this year, but you have lived comfortably without it this long, you should seriously consider using the extra money as a regular monthly overpayment to your mortgage." Miss Tucker continues: "Mortgage lenders normally allow you to pay up to £500 monthly or 10% of the debt, and for most your interest will be recalculated immediately.
Simply overpaying an extra £50 per month will bring a £150,000 25 year repayment mortgage down from 25 years to 22 years, and save you a whopping £17,415 on the cost of your mortgage over the term.
If you are lucky enough to receive a substantial lump sum as an annual bonus, paying off part of your mortgage could be a very sensible thing to do this year, because whilst interest rates are high, reducing your debt saves you even more on a monthly basis.
If you reduce your £150,000, 25 year mortgage by £20,000 this January but keep your mortgage payments the same, you can pay off your mortgage 6 years early.
The biggest savings are made if you pay in a lump sum, but don't reduce your monthly mortgage payments.
Ask your broker for an illustration of your current mortgage, and one showing the bonus paid off, or increased monthly payments.
To contact Charcol, who no longer charge a fee for mortgage advice, call 0800 358 55 60.
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