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Pay mortgage with bonuses borrowers urged

Wednesday, 30 January 2008 12:00 AM

Mortgages broker John Charcol is urging borrowers to employ their Christmas bonuses and any potential increases in salary to pay off their mortgages.

At this time of year many Brits will be relieved to receive their first pay cheque of 2008 - potentially bringing to an end the lean month of January.

In addition many people in the labour market also receive a two per cent pay rise to counter inflation, along with a potential bonus from the Christmas period.

But instead of spending these windfalls frivolously, advisors at John Charcol suggest investment for the future.

A two per cent increase on a £35,000 salary equates to roughly £50 a month in additional pay - which could be put toward a mortgage, advises mortgage expert Katie Tucker.

"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," argued Ms Tucker.

Most lenders will allow up to £500 in repayments monthly, and overpaying on a £150,000, 25-year mortgage at £50 a month will bring the term down to 22 years and save a massive £17,415 in interest.

The picture is even rosier if you receive a single amount as a bonus.

"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 while interest rates are high, reducing your debt saves you even more on a monthly basis," continued Ms Tucker.

It all comes down to self-discipline, according to the advisors.

"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," concluded Ms Tucker.

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