4 ways to save money on your mortgage
Mortgage payers haven’t never been under so much pressure since 2008. Almost an entire generation of borrowers used to 1-2% interest rates are now paying 6% or more.
When we were ‘only’ borrowing a small percentage of our salary for a mortgage, it was more manageable. Now we’re borrowing more to buy a home, it’s not always manageable.
So what can you do? Can you save money on your mortgage?
You can, but it isn’t straightforward.
It will be more about saving money on the interest you’ll pay rather than lowering your monthly payments.
There is a tip for that too though.
You’ll need a decent credit score, to pass affordability tests and be willing to renegotiate or apply for a new mortgage for these. Otherwise, they should be accessible to anyone.
1. Get off the standard variable rate
If you’re on your lender’s standard variable rate, get off it. If the fixed deal or discounted rate came to an end and you didn’t switch to a cheaper rate, do it now.
The standard variable rate is rarely the cheapest option. It’s most often the most expensive, so get off it now.
It will mean applying for a new mortgage and going through the rigmarole, but it could save you hundreds, or thousands a year.
Refinancing your mortgage opens the door to a cheaper rate, longer term and using any equity you have built up to reduce the mortgage and make it more affordable.
With rates rising all the time, it’s an effective way to save money on your mortgage.
2. Overpay your mortgage if possible
Overpaying is a tough one to sell. If you’re looking to save money on your mortgage, chances are, you’re looking to lower outgoings not increase them.
But. Overpaying is the single best way to pay off your mortgage faster and save thousands on interest.
You could set a fixed amount per month to pay or simply round up. For example, if your mortgage payment is £850 per month, round it up to £900 or £1,000 depending on your situation.
Smaller increments work too. Rounding up £565 per month to £600 can still save you several thousand in interest over the term with minimal impact on your daily life.
Most mortgages will let you overpay by at least 10% per year. Check your mortgage, make sure you’re not on the fixed term part. Then, if you have spare cash, do it.
Just make sure to specify the overpayment goes towards the paying down the loan and not the interest!
3. Save any extra money for a lump sum overpayment
This can also be a tough sell if you’re trying to lower mortgage payments. But, like regular overpayments, a lump sum overpayment is an incredibly useful way to save money on your mortgage.
Save any spare cash you have. Save any tax refunds, overtime, bonus or any extra cash you may come across.
Keep it until you have 1 months’ mortgage payment and make a lump sum overpayment.
Specify that it’s to pay down the loan and not interest and you could save thousands over the term of the mortgage.
4. Extend the mortgage term
Extending the mortgage term doesn’t save money on your mortgage. It does make your monthly payments more affordable though.
The longer the term, the more interest you’ll pay, which isn’t cheaper. But the longer the term, the more months the loan is spread over, so the monthly payment is lower.
If it’s possible to not extend the term, don’t. If you need to save money each month to balance the books, this is a way to do it.
Just make sure your new mortgage charges interest daily as that can also lower the interest you’ll pay over the term.
Save money on your mortgage
A mortgage is typically a fixed amount per month for a fixed number of months. There is some flexibility in some mortgages though.
If you need to save money, check the type of mortgage you’re on, the rules for overpaying and see if there’s something you can do.
If you think you’re going to miss a payment or face serious financial difficulties, discuss it with your lender. They are obliged to be as helpful as they can to avoid repossession.
Debt charities can also offer advice if you really need it.
