First-time buyers 'should reduce loan'

14-Feb-2008

First-time buyers with interest-only mortgages can make substantial savings on their property by making overpayments, an expert has advised.

An increasing number of first-time buyers have opted for this kind of mortgage in light of the current cost of buying a first home, but they should be mindful of potentially tightening credit conditions, according to personal finance site Motley Fool.

David Kuo, head of personal finance at Fool.co.uk, commented: "The shift to interest-only mortgages is not unexpected, given the increasingly onerous cost of buying a first home. However, first-time buyers who have made this choice should try to reduce the size of their loan quickly."

He added that many lenders will allow those with interest-only mortgages to make overpayments. This would mean every £1,000 of overpayment would reduce the loan by the same amount while at the same time substantially reducing the interest bill.

The Motley Fool is an independent company dedicated to helping people redefine the way they think about and interact with money.

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