Overpay Your Mortgage
If you have an option to overpay your mortgage and even have resources to do so – do it. The amount you overpay your mortgage by goes directly to repaying the loan rather than interest rate (check your mortgage terms to make sure it in fact goes to paying off loan).
Be aware that majority of repayments, especially in the early years of mortgage will actually go for paying off interest. While it is a bit against the common sense it makes sense form the bank’s point of view. Bank tries to minimise the risk related to loaning out money.
Let’s say your mortgage is £200’000. You have 25 remaining mortgage term and your monthly payments are £800.
Overpaying your mortgage by £200 each month would save you almost £10’000 in interest alone and you would pay debt in full almost 6 years earlier.
Of course don’t make overpayments if you can’t afford them. It is more and more common nowadays for people to take mortgage simply to escape unbearably high renting cost.
I personally pay almost £500 less (monthly) having mortgage than I would pay for the rent on the property of the similar size and standard. Even if I don’t manage to repay my mortgage during my lifetime I will be still better off repaying mortgage.
Cut the length of the loan term
If you can afford it cut the length of your loan term. While it increases your monthly repayments for now it will save you thousands of pounds in the long term.
Naturally cut the length of your loan only if it doesn’t put too much pressure on your home budget. You don’t want to find yourself struggling to make repayments – that would put you at risk of losing home.
Check your repayments vehicle
Make sure you plan your mortgage payments in advance. You need to make sure you are able make payments towards your mortgage each month.
If you feel like you won’t able to pay contact your bank. Remortgage your house to lower monthly payments if necessary. Make sure you always communicate with your bank in case things go south. Bank may be willing to find temporary solution (such as temporarily reducing your instalments).
Know your limits. Don’t try to get the property which is clearly out of your reach. You may lucky to get the property you wanted but what would happen if you can’t afford to pay back the loan? Stay within your means. Be honest with your broker when it comes to you monthly income and expenses.
Find the lowest interest rate
It is crucial you get the best possible deal on your mortgage. Differences between mortgages are significant. In long term it translates to thousands of pounds. This is why you need to compare plenty of mortgage offers to pick the right one.
This pretty much comes down to choosing right mortgage broker. You need to make sure your broker is the one who looks into whole market. If you stack with mortgage advisor who works directly with one lender there is huge possibility you will miss out on much better deals.
When picking mortgage broker don’t hesitate to ask him/her if she looks into whole market. Broker needs to disclosure this information to you. It is also his/her duty to provide the best possible option considering your financial situation.
It is a common practise that your lender or mortgage broker works with partner services providers. For example – your mortgage broker may recommend you solicitors. Housing association may recommend you affiliated mortgage broker and so on.
Be aware that you are not require to use any off the services suggested to you. Sometimes (luckily not very often) you may get impression that there is some kind of requirement of choosing a certain affiliated provider. The housing association which I tried to purchase a flat from asked me to give a call to a certain mortgage broker. I almost fall into the trap of these recommended services but luckily did my research and chose a broker I thought may give me the best deal.
Cross-selling is a very common practise. I don’t want to suggest recommended services won’t be of high quality – some of them surely will be adequate to your needs. Simply put your self-interest first! It is you who’s going to repay the mortgage after all. You don’t own anything to the people who live out of providing mortgage related services (you do own a lot to the bank though).
Gain from my personal experience – I’ve used solicitors suggested by my mortgage broker. The deal almost fall through because of the incompetence of people dealing with a legal side of my loan application.
Remortage your property to avoid variable rate
Make sure you are aware when your fixed rate (usually first 2 years of your mortgage) finishes. After fixed period Standard Variable Rate kicks in usually increasing your monthly repayments. This may put extra pressure on your family budget.
Fortunately it is easy to remortgage your property. This lets you to freeze rate for some time and enjoy stability.
Naturally Standard Variable Rate is not all that bad but most of the people won’t benefit with SVR.
While remortgaging property is a standard nowadays, as many as 1 in 5 home owners are on SVR unconsciously.
Don’t remortgage or pay off when in fixed period
While it sounds like a common sense many people still do it and activate early repayment penalty. If possible wait until your fixed or any introductory deal (such as discounted or tracker deal). Early Repayment Charge may be as high as 7% of a mortgage loan – surely you want to avoid it.