For most of us, a mortgage payment is one of the biggest monthly expenses we face. So, anything that enables that cost to be reduced is worth looking into. Whether you¡¯re struggling to make your mortgage payments, or you¡¯re keen to release more of your monthly income for other things, there are steps that you can take to help bring the cost of your borrowing down.
Increase the length of your mortgage
If it¡¯s an option for you to increase the term of the mortgage to a longer one then you¡¯ll be able to pay less each month. This may depend on a number of factors, including age and income. It¡¯s worth enquiring with your existing provider about whether this is possible and also looking at other deals with longer terms. But keep in mind that you may pay more interest in the long run by doing this.
Overpay on your mortgage wherever you can
Interest rates are currently very low, which makes this a great time to start making over-payments on your mortgage. If rates do start to go up in the near future any mortgage you have outstanding could increase in cost, depending on the rates deal you have in place. If you¡¯ve overpaid on your mortgage now then you¡¯re cutting the cost of what you¡¯ll have to pay that increased interest on in the future.
Remortgage
You may find that when you come to remortgaging there are many more attractive deals out there than the one you currently have. If you¡¯re looking to use a remortgage to cut your monthly costs you¡¯ll need to:
- Consider your credit score. If this is low then you may not get a better, cheaper deal than you currently have. It may be worth waiting until your score improves before attempting to remortgage to cut costs.
- Remortgage before the standard variable rate (SVR) applies. This is the rate you¡¯ll move to after any fixed deal expires. It tends to be higher than the fixed rate and so your monthly payments will increase if you don¡¯t remortgage before it kicks in.
- Make sure you factor in the fees. You could end up paying thousands in set up and exit fees and this may make other savings totally redundant.
- Shop around for the best deal. There are a lot of different options for mortgages today and it makes sense to do plenty of research to find the best deals and the lowest costs.
- Look at the Loan To Value (LTV) ratio. This is essentially what you owe against the value of the property. If property prices rise then your LTV ratio will go down and that will make it easier to get a better remortgage deal.
Move from a fixed deal
Fixing mortgage rates for a specific period of time can help protect your finances if interest rates do go up. However, this protection does tend to come at a premium i.e. you¡¯ll pay more for it. Although no one knows what interest rates are going to do, a tracker rate ¨C i.e. an interest rate that changes with the bank base rate – may work out cheaper for now. Just be aware that if interest rates go up your mortgage payments will too.
If you don¡¯t yet have a mortgage, make careful choices
For those who are currently trying to find a mortgage, you can reduce how much this costs you by:
- Saving a bigger deposit. The more deposit you have, the smaller the mortgage you¡¯ll need and so the less it will cost you.
- Considering working with a mortgage broker. You will usually have to pay a fee to use a mortgage broker. However, their knowledge and experience can be invaluable when it comes to finding the best value deal ¨C and that may offset any charges they make.
- Paying the mortgage fee separately. Many lenders add the mortgage fee into the mortgage itself so that it is factored into your repayments. If you can, clear this separately ¨C as fees are often in excess of ¡ê1,000 you can reduce your balance this way.
- Finding a better deal. Many lenders offer fee-free mortgages today ¨C if that¡¯s an option for you as a borrower it¡¯s a reduction you can make in the overall costs.
If you want to cut the cost of your mortgage ¨C whether you already have one or are currently looking for a deal ¨C there are lots of ways to do it. Improving your financial position will always give you an advantage when it comes to dealing with lenders, whether that¡¯s working on your credit score or overpaying on your existing mortgage.