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Rent out a room to shave months off a mortgage

Rent out a room to shave months off a mortgage

Category: Mortgages

Updated: 02/09/2011
First Published: 02/09/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Homeowners with an offset deal could shave months off their mortgage by renting out a spare room.

By renting out a room for just five years, homeowners with an offset mortgage could reap the benefits, research from first direct has found.

Offset mortgages allow homeowners to overpay their mortgages, reducing the length of their deal and the total interest paid.

The findings come as many students return to university, while house prices remain out of reach for numerous others.

It means that those with an offset mortgage could be in place to put their spare rooms to great use, saving money and reducing the term of the home loan.

Figures show that by using monthly rent to make mortgage overpayments, the typical homeowner could shave 29 months off their mortgage and save just over £1,000 in interest over five years.

The Government's Rent a Room scheme means there are no tax implications for letting a furnished room in your home, up to the value of £4,250 per annum, so homeowners with space to spare could earn up to an extra £354 per month to put towards their mortgage costs.

"As long as all necessary precautions have been taken, having a lodger is a really easy way for homeowners to earn more cash and reduce the term of their mortgage," Richard Tolchard, senior mortgage product manager at first direct, commented.

"The added benefit of flexible offset is that if homeowners need access to the money they've overpaid they could redraw up to the original amount of the mortgage borrowing."

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