Se­cret to beat low sav­ing rate

Sunday Mirror - - FRONT PAGE -

whack of sav­ings these don’t cut the mus­tard.

In­stead there is a hid­den sav­ings op­tion avail­able for mil­lions, and it comes in the shape of your mort­gage. in­ter­est and many of these have gone up this week as lenders waited un­til De­cem­ber 1 to im­ple­ment Novem­ber’s UK base rate rise. As over­pay­ing a 4% mort­gage is like sav­ing at 4%, that smacks the pants off any sav­ings ac­counts.

Even if you’re not on the SVR, the golden rule is, if your mort­gage rate is higher than top sav­ings pay, then math­e­mat­i­cally you’re bet­ter off aim­ing to clear it (un­less you’ve other higher in­ter­est debts like credit cards – then clear those first). If it’s lower, then save in­stead.

When com­pounded, the gains from this can be enor­mous. If you dunked £5,000 of sav­ings on to a 25-year £150,000 4.8% mort­gage, you’d save over £10,000 in in­ter­est alone by the time the mort­gage was clear.

Or shift sav­ings of £250 a month to over­pay that mort­gage and you’d clear it nine years ear­lier, sav­ing £40,000 in in­ter­est. To work out your per­sonal sav­ing you can use my mort­gage over­pay cal­cu­la­tor at www.mse. me/mort­ga­geover­pay­calc.

Many peo­ple are do­ing this like Tim, who tweeted “@ Mar­tinSLewis We’ve over­paid £100 per month on the first two years of our mort­gage and saved 12k in in­ter­est al­ready!” Al­ways have an emer­gency fund of three to six months’ worth of bills as even if you’ve over­paid a mort­gage, if you lost your job you could face mort­gage ar­rears. Most mort­gages let you over­pay up to 10% of your bal­ance an­nu­ally, but a few have over­pay­ment penal­ties. So check that, be­cause any penal­ties will al­most cer­tainly ki­bosh the gain.

If you do over­pay, en­sure the mort­gage com­pany uses it to shorten your term rather than re­duce your monthly pay­ment, or you won’t feel the gain.

And a fi­nal boon from this... over­pay­ing may also help you get a cheaper fu­ture mort­gage rate as it re­duces your LTV (Loan To Value – how much of your house’s value you’re bor­row­ing). For each 5% lower that is, down to 60%, mort­gages tend to get cheaper. Martin says: Many peo­ple will have seen me on TV shout­ing pay off your card “IN FULL”. And your ques­tion is the rea­son why.

If you don’t pay your card off, you don’t just pay in­ter­est on the amount re­main­ing, you pay it on the en­tire bal­ance. To be clear, if you’ve £1,000 on the card and you clear all but £1, you pay in­ter­est on the whole £1,000, not just on the £1. This is why if you can nearly clear the card, do what you can to to­tally clear it.

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