How Can I Cut My Mortgage Payments?
, by Matt Stevens
Over the past year, existing homeowners have undeniably been placed in a difficult position. The Bank of England raised its interest rates 14 times consecutively, resulting in the base rate being at its highest level since 2008.
For those on variable rate mortgages, this meant a direct increase in the cost of their monthly repayments. Evidently, this has made it hard for many to balance their finances. Likewise, the current context signals potential monetary worries for people who are nearing the end of their fixed-rate mortgage term too. It’s natural, seeing - or indeed anticipating - the stark and substantial rise of your bills is extremely disconcerting.
However, there are in fact a number of ways to reduce your monthly outgoings by cutting your mortgage payments. So that you can figure out the right course of action to make your housing situation more affordable, we’ve compiled 6 methods of minimising your mortgage payments.
1. Don’t stay on your lender’s standard variable rate
When your existing mortgage term comes to an end, you’ll be automatically placed on your lender’s standard variable rate (SVR). Generally speaking, SVRs are much more costly than those attached to alternative deals on the market.
Therefore, it’s almost universally advised that you start looking at other options before you’re left to sit on your lender’s SVR where you’ll experience financial losses. Fortunately, if you’re still on your initial mortgage plan, you can begin searching for more beneficial products up to 6 months in advance.
Whether you opt for a fixed or tracker-rate mortgage, it’s a guarantee that you’ll save money you would have otherwise lost if you stayed on your lender’s SVR.
2. Switch to an interest-only mortgage
If you’re reading this, then there’s a good chance that your mortgage package is on a monthly repayment basis. After all, the majority of standard residential mortgages are. Though, if you’re having difficulty comfortably keeping up with these required repayments, then it may be worth switching to an interest-only mortgage.
The crux associated with interest-only mortgages is that they represent only a short-term solution to decreasing the cost of your mortgage payments. Reason being, that interest-only mortgages don’t have you paying back any of the capital you owe. So, effectively, you won’t be reducing the amount of debt you have and will pay more interest overall in the long run.
3. Consider extending your mortgage term
As a rule, the longer your mortgage term is, the less your monthly mortgage repayments will be. On this note, you should consider extending your mortgage term if you’re struggling to cover the current cost of your mortgage.
Albeit, if you do decide to extend your mortgage term, then similarly to if you went for an interest-only mortgage, you’ll end up paying more interest overall. Again, like an interest-only mortgage, extending your mortgage term is a temporary solution and should be treated as such.
Specifically, we recommend that you reduce the length of your term after you once again become financially stable. Notwithstanding, each are entirely viable options regarding alleviating financial pressure for a short period of time.
4. Think about an offset mortgage
If you currently own a home and have a sizable amount of savings tucked away, then it’s wise to think about an offset mortgage at some point. An offset mortgage is a type of mortgage where you link your savings account to your mortgage account.
It works by having the amount of money you have in your savings account offset against the outstanding balance of your mortgage, thereby reducing the amount on which you have to pay interest.
For instance, if you had a £200,000 offset mortgage alongside £50,000 in savings, you would only pay interest on the remaining £150,000. The inherent benefit here is lower monthly repayments. But, you can also choose to keep these as they were before the deduction, instead paying off your loan faster.
5. Overpay on your mortgage if you can
If you’re in a position to do so, another approach to cutting your mortgage payments is by making overpayments. Even a relatively small overpayment on your mortgage can significantly decrease your monthly cost. This is especially the case if the interest rate on your existing mortgage is higher than the interest you earn from your savings.
Having said this, before proceeding with overpayments, it's essential to check with your lender to confirm whether they allow them. Typically, lenders permit overpayments of up to 10% of your mortgage balance annually, and exceeding this limit might result in penalties.
An added benefit is that the more you overpay on your mortgage, the greater the likelihood it is of you moving into a lower loan-to-value (LTV) bracket. Such a shift provides you with more flexibility concerning competitive deals for remortgaging.
6. Look for a cheaper deal
Despite the various ways in which you can cut down your mortgage payments, sometimes the most obvious solution is the best choice. That is, simply looking for a cheaper deal. The previous tips we’ve discussed are only applicable if your personal situation and financial circumstances align, whereas better mortgage packages can be enjoyed by every homeowner, both current and prospective.
Although it of course helps to improve your credit score and lower your LTV before switching mortgages, it could just be that you’re searching in the wrong places. This is where having a mortgage broker at hand to assess your case before scouring the market for a deal which perfectly suits you is integral.
We at The Mortgage Genie have helped many of our UK clients to cut down their mortgage payments by evaluating the options before them, and thereafter helping them to secure it. We have the experience required to ensure that your existing mortgage product is always the most cost-effective, and to guide you through the entire mortgage or remortgage process from beginning to end.
If you require a team of expert mortgage brokers, then be sure to give us a call at 01915809890. And why not see how much you could borrow up to today by using our mortgage calculator?
