Early repayment of mortgages 'very good idea'

In the current economical climate, it makes sense for borrowers to pay their mortgage off early, according to one bank.

Heavy borrowing makes sense during times of high inflation because the value of the loan goes down, but at the moment as inflation is holding steady and so is the debt, said Paul Fincham, a spokesman for Halifax.

Despite inflation reaching 2.8 per cent last month above the government target of two per cent, he said that when inflation is steady, consumers can not count on sudden wage hikes to pay off debt and that with the abolition of the mortgage tax relief, there is no tax incentive to retain the debt.

Instead he suggested making overpayments. He said: "Generally paying more on top of your monthly minimum mortgage payment is a very good idea and even a small amount over the years will make a big difference and save you quite a bit in helping to reduce initial capital and paying off the interest."

People who have mortgages which have interest calculated on a daily basis, may be able to make significant savings, he mentioned.

Mr Fincham added that before making overpayments, or paying the mortgage off early, it is worth studying the mortgage policy to see what the fees for early payment are.