As a new year starts, it’s a great time to review your mortgage. It’s a step that could save you money now and over the full term of your mortgage. Even a relatively small saving each month can add up over the years you’ll be paying a mortgage. Julie Ward, Mortgage Client Support at Pembroke Financial Services, offers seven tips that could help you.
1. Check when your current deal ends
Julie said: “If you currently have a mortgage deal in place, make sure you know when it ends. Usually, you’ll be moved on to your lender’s Standard Variable Rate (SVR) at the end of a deal. This is typically a higher interest rate than you’d receive if you searched for a new deal. It would mean your monthly costs are higher than they need to be, and the difference can significantly add up over the term of your mortgage.
“Despite this, according to Experian, up to 44% of the UK’s 10.8 million mortgages are likely to be paying a provider’s SVR. Moving from an SVR could save you thousands of pounds.”
2. Review the interest rate you’re paying
Interest rates are low, but even a small difference has an impact over the term of your mortgage. It’s worth reviewing how much you’re paying in interest and what else is available on the market.
If you had a £200,000 mortgage over a 20-year term at 3.5%, for example, your monthly repayments would be £1,160. Over the full term, the interest would add up to £78,459. However, an interest reduction of just 1% to 2.5% would mean total interest adds up to £54,379. You’d save over £24,000 in total by switching.
If you currently have a deal in place that isn’t coming to an end, make sure you check what early repayments fees you’d face if you switched.
3. Check your insurance policies
If you have buildings and content insurance separate from your mortgage, it can pay to bundle them together. Choosing one provider can mean they offer you a discount that will ensure your home is protected for less. However, this isn’t always the case. Make sure you get quotes from different providers to compare before proceeding.
4. Make overpayments if possible
“If you want to make long-term savings and you’re in a position to do so, making overpayments on your mortgage can reduce the amount of interest you pay and mean you’re mortgage-free sooner,” Julie advised.
“If you had a mortgage of £150,000 over 25 years with an interest rate of 2.5% and made a regular monthly overpayment of £200, you’d pay off your mortgage seven years and three months earlier. You’d also save over £16,000 in interest alone.”
Overpaying your mortgage can provide you with more flexibility too. For example, should you need to take a mortgage holiday in the future, overpaying now can mean you stay on track. With this option, you’re also not committed to making the overpayments, so you can pause or stop them if needed.
Before making overpayments, you should check your mortgage agreement. Most mortgages will allow you to pay up to 10% of the outstanding loan before fees are added, but you should always check.
5. Reduce the term
Like the above, reducing the term of the mortgage will mean you pay less interest and own you home outright sooner, but your monthly repayments will increase.
Unlike overpayments, you won’t have to worry about facing additional fees. However, you need to make sure you can keep up with the higher monthly costs as you won’t have the flexibility that overpayment offers, and you could lose your home if you’re unable to meet the financial commitment.
6. Get your home valued
Julie added: “If you’ve lived in your home for a while, it’s likely the value has increased. According to the November Halifax House Price Index, prices increased by 7.6% in the last 12 months alone. If you’ve undertaken renovation projects on your home, the value may have increased even further than other properties in the local area.
“The value of your home can make a difference in your mortgage payments. As prices rise, the equity you own within your home also increases. If you fall into a new loan to value (LTV) band, this can give you access to lower interest rates. This can save you money each month and in the long term.”
7. Pay fees upfront
If you’re taking out a new mortgage deal, you’ll usually be offered the opportunity to pay fees upfront or select a deal with no fees. While it can be tempting to reduce costs now by choosing a deal with no fees, this will usually mean the interest rate is higher. If you calculate this difference over the term of the deal, you’ll often save money by paying fees upfront.
How we can help
A mortgage is one often one of the biggest expenses we have. If you’re taking out a mortgage, whether you’re moving home or your current deal is finishing, working with us can help you reduce the cost. Please get in touch, to discuss your mortgage needs.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments.