Though even getting a mortgage in this day and age might seem like something of an uphill struggle, once you’ve finally managed to secure one and are sitting pretty in your brand new home, it would be unwise to simply forget about it and ‘let it take care of itself’. Keeping on top of your mortgage and not letting it get out of hand could lead to a significantly better standard of living for you and your family and all it requires is a little responsibility, a lot of patience and a fair amount of information, information we hope to impart via the tips below.
Don’t Pay The Standard Variable Rate (Or At Least Find A Good One)
The Standard Variable Rate (‘SVR’) is the rate charged by your mortgage lender once the ‘introductory’ or discounted period of your mortgage has been paid off and they are generally a complete waste of your money! It’s estimated that around 40% of the mortgage market are languishing on an unfair SVR, simply because they can’t be bothered to remortgage or talk to their lender and get a better rate. The average SVR is a rather insane 4.86% and that’s a low-ball figure. Most maddeningly of all, as you’ll be paying a good 2% more than you should be on an SVR, you’ll end up paying potentially thousands more a year. Of course, not everyone feels like remortgaging their property every few years, which is understandable in some cases. If this includes you then at least hunt for a lender who won’t ramp up the base rate percentage dramatically. Do your research and shop around!
Research And Plan Your Remortgage
Speaking of research, use the internet to your advantage. There are hundreds of bespoke sites such as ‘cbonline‘ and this is money that includes their own charts, calculators and tables, which will be able to help you work out what deals you can and should be getting. Research months in advance so you can finalise the remortgage before you’re stuck paying your original lender’s SVR. Also be weary of cheap fixed rates. If lenders fixed rates appear cheaper than the best deals elsewhere it’s probably because they are expecting the base rate to drop soon. That being said though, fixed rates are generally a more enticing proposition for younger buyers who might not be able to afford the fees associated with a variable mortgage.
Be Weary Of Hidden Charges
When remortgaging you might save a lot of money in the long term, but in the short terms there will undoubtedly be hidden fees to contend with. This is especially true if you’re moving lender, as you’ll not only have fees to pay your new lender, but you’ll have ‘exit fees’ to pay the old one. Make sure you know exactly how hefty these charges are before you sign anything.
Overpay When You Can
Many UK homer-owners have reached a point now where their banks are offering pitiful interest rates and their mortgage costs are soaring. If this is the case, you’re on a flexible mortgage and are doing perhaps a little better financially than you anticipated; overpaying or even flat out paying off your mortgage might be a sensible option, especially if you’re coming towards the end of a cheap rate. Of course, this might not apply in all circumstances though, as there are many lenders who will actually punish borrowers who try to repay quicker than agreed. The reason behind this is simple enough to understand. It’s in their best interests to keep you dangling as long as possible because the longer a variable mortgage lasts, the more money they will make from you. Overpaying is not only tax efficient (the benefit’s equivalent to the rate you pay on the loan) but is largely risk free as any overpayments made can still be accessed if they are needed.
Pay Lump Sums
Unlike with overpayments, lump sums cannot be accessed again unless your remortgage and withdraw equity so make sure you know the difference. They are however, more convenient than overpayments and allow you to pay off your mortgage sooner.
Consider Cutting Your Loan Term
When you first take out your mortgage, you will most likely have chosen yourself how long you want to take you pay it off. In an ideal world, the ‘deadline’ would fall well before your potential retirement age, but we live in a far from ideal world. You might want to consider shortening the term and paying off the mortgage whilst you still have time left to enjoy life. It will require larger monthly payments but there are no doubt sacrifices that could be made to facilitate this. Putting it in less abstract, monetary terms: Over 25 years, a 4.5% mortgage repayment on a £100,000 mortgage would end up costing you £166,700, whereas the same mortgage paid over 15 years would cost you a grand total of £137,700. Just think of what you could do with £29,000!
Play It Safe!
Finally, try not to go overboard with your spending. Keep at least six months’ worth of mortgage payments in savings at all times as a back-up and don’t spend what you don’t have!
About the author:
Melissa Barber is a finance specialist and having paid her second mortgage knows the best ways to save yourself money in the long term.