The purchase of a house is the biggest single investment that most of us will ever make. It typically means committing to anywhere from 10 to 30 years of making regular monthly payments of hundreds, or even thousands, of pounds. While you might not want to shop around and change mortgage deal every month, you could potentially save thousands of pounds by making a few simple changes and by ensuring that you are on the best type of mortgage for your circumstances.
Save Money On Your Mortgage By Following These Simple Tips
Beat Rate Rises
It is virtually impossible to predict interest rate rises. However, if the general consensus is that rates are set to rise soon, then arranging your mortgage sooner is likely to yield greater benefits. The mortgage market will follow interest rate sentiment to some degree, but fixed and tracker mortgages tend to stick quite rigorously to the current market rates.
The Bank of England’s Monetary Policy Committee meets every month to vote on interest rate movements. Research the results of the latest vote, what the market believes will happen, and determine whether rates are expected to rise in the near future. If interest rates are substantially lower than when you arrange your existing mortgage, then now is a good time to shop around and compare prices for the best available deal.
Pay A Little Extra
There are arguments for and against overpaying your mortgage or paying a little extra each month. Generally, though, it is accepted that you should pay into your pension scheme, pay off high interest debts like credit cards, and accumulate an emergency fund of around three months’ of living expenses before you pay extra off your mortgage. What’s more, if you can find a savings account that has a higher interest rate than your mortgage rate, then it makes financial sense to save rather than repay.
Even if you have a modest £150,000 mortgage on a 25 year term, you could save more than £10,000 in interest charges over the life of the mortgage, just by paying £100 a month extra.
Before you consider overpaying, paying off the balance of your mortgage early, or even shopping around for a new mortgage, you need to determine whether there are any fees associated with your account. Fees, such as overpayment fees or cancellation fees, could swallow up the savings that you stand to make.
You should ensure that you have an in-depth understanding of your mortgage, and its terms. Not only do you need to know your monthly payment, the total amount that is outstanding, and for how much longer you will need to make the agreed repayments, but you should calculate any potential fees, any penalties, and any additional terms or charges that are included in your mortgage deal.
Leverage Your Savings With An Offset Mortgage
With an offset mortgage, the money in your savings account is deducted from your mortgage, so that you only have to pay interest on the remainder. Even if you only have £20,000 in a savings account, you would only have to pay interest on £130,000 of your £150,000 mortgage. Paying less interest means that your mortgage will be paid off sooner, and your monthly payments will be lower.
Check the best savings account rates available, and compare these to the interest rates available with an offset mortgage. If an offset mortgage has higher interest rates that are still favourable compared to standard mortgages, it means that you could benefit from a solid mortgage rate as well as better savings rates than you would otherwise achieve.
It may sound obvious, but downgrading to a less expensive property will save you money on your mortgage. Take a look on property portals like bridgfords.co.uk and determine whether you really need two spare rooms, and the extra bathroom. Downsizing usually means that you will save money on utility bills, on council tax, and on other expenses too.
Reduce Your Loan To Value Rate
Another benefit to downsizing is that it can help to reduce your Loan To Value (LTV) rate, and could provide you with a substantial deposit when you do downsize. Mortgage companies tend to offer their best rates and best deals to those borrowers with the lowest LTV, and they have cut-off points where you move to the next best interest rates.
Your LTV is the proportion of your home’s value that is borrowed. If you owe £140,000 on a £150,000 property, then your LTV is 93.3%. If you can reduce the money you owe to £135,000, then your LTV will be 90%, which means that you might be presented with better deals. Your LTV is calculated by using the current value of your home, so if your property has increased in value, then your LTV is likely to have reduced, so better deals should be available.
It is possible to save money on your mortgage. A few simple changes, a slight increase in the monthly payments you make, and ensuring that you are on the best deal for your current circumstances, means that you could save thousands of pounds over the lifetime of the mortgage.
Hudson Le Messurier is a financial planner and likes to be able to share his ideas for financial efficiency with an online audience. He is a frequent contributor for a variety of consumer finance and lifestyle websites.