For most of us, our housing costs are the biggest monthly expenditure we face.
However, there are plenty of very simple measures we can all take which will reduce the actual cost of our mortgage.
1) Shop around
First off, it’s important to emphasize
5262’ the importance of shopping around for a mortgage, rather than always going to your bank.
The fact is that many of the very best deals come from lenders that you don’t find on the high street, so doing your research and comparing deals can lead to some seriously significant savings.
2) Use a broker
If you don’t want to handle it yourself, then it’s well worth speaking to a mortgage broker.
Not only are they more likely to know precisely which lenders are most likely to want to lend to someone in your position, they will often have access to lenders who don’t deal with borrowers directly.
3) Save a bigger deposit
The key factor in the interest rate on your mortgage is the loan-to-value – in other words, how big the loan is as a proportion of the overall value of the house. If you are borrowing 90% of the property’s value, it will come with a much higher interest rate than if you are borrowing 60%, for example.
So take the time to save a more significant deposit, and you’ll enjoy a smaller interest rate and therefore smaller repayments.
4) Do you really want to fix?
Mortgage rates come in two main forms: fixed and variable. With a fixed rate, you know exactly what your repayments will be for a set period. For example, with a five-year fixed rate, your monthly repayments won’t change for five years.
The trouble is, that certainty comes at a premium; a tracker rate, which goes up and down alongside the bank base rate, may work out cheaper. You just have to be happy to accept the rate may increase at any stage.
5) Short vs long-term
Even if you do decide to fix, there is a decision to be made on how long you want to fix your rate for. Going for a two-year fixed rate, for example, will result in smaller monthly repayments than a five-year deal, for example.
Just bear in mind that there will be additional costs further down the line if you choose to remortgage – you’ll have two lots of products fees to pay if you take out two consecutive two-year fixed rates rather than a four-year fixed deal.
6) Don’t add the fee to the mortgage balance
Most mortgages come with a product fee, just for taking out the loan. These fees aren’t cheap, often costing more than £1,000.
As a result, many borrowers opt to add the fee to the mortgage balance, so that they don’t have to pay it up front. However, this means that you will end up paying interest on the fee, meaning it actually costs you even more.
If you can afford to do so, pay the whole product fee in one at the outset.
7) Find a fee-free deal
Another alternative is to go for a mortgage that doesn’t charge a product fee at all.
You’ll need to do your sums though, as these will generally come with a higher interest rate so may not actually save you cash over the long term.
8) Adjust your mortgage term
Historically, most borrowers have opted for a 25-year mortgage term. However, you can change that term, to fit your circumstances.
By extending your mortgage term, you can cut the size of your monthly repayments, though it will mean you pay more overall as you’ll be paying interest on your outstanding debt for a longer period.
Alternatively, you can reduce your mortgage term. While this will increase the size of your monthly repayments, it does mean that your mortgage will be cheaper overall as you’ll pay it off quicker.
9) Overpay when you can
Along similar lines, it’s worth overpaying on your mortgage if you can afford to do so.
Most mortgages allow you to overpay by 10% each year without incurring additional fees, and doing so means that you will pay off the overall mortgage balance quicker, saving thousands in interest charges in the process.
10) Make use of your savings
An offset mortgage is a clever way to use your savings to cut the cost of your mortgage repayments. Essentially the idea is that your savings balance is offset against your outstanding mortgage balance, and you then only pay interest on the difference.
In other words, if I have a £150,000 mortgage and £50,000 in savings, and offset mortgage would mean that I only pay interest on £100,000 of that mortgage balance, which would mean a significant reduction to my mortgage bill.
The one downside is that with an offset deal, you give up the option of earning interest on your savings, though given the paltry rates on offer today that’s not as problematic as it once was.
Courtesy of Forbes and credited to John
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