7 Ways to Cut Your Monthly Mortgage Payments
Staring down the wrong end of a 25 to a 30-year mortgage can feel overwhelming and exciting all at the same time, especially for first-home buyers. Fortunately, you can use strategies to make your mortgage dollars go further during those times you are struggling to make ends meet.
1. Make the Switch
Is your lender supplying the cheapest rate? If not, it may be worth your while to switch to a more affordable option. Finance institutions won’t want to let you go easily, though, so a change in providers will incur fees and charges. Make sure you carefully crunch the numbers to know you are getting your money’s worth. You might also like to try informing your current lender about your intentions, as many will happily drop their rate to keep you as a customer.
2. Increase Your mortgage Period
Adding on a few extra years to the mortgage contract term will reduce your monthly payments. This strategy comes at the expense of adding to the overall cost of the finance because you will be paying it out for longer. Still, it will free up some monthly cash for staying on top of your other monthly bills. And, don’t forget, you can add extra to your payment to compensate should you find some spare cash at the end of the month.
3. Pay More When You Can
Don’t splurge the savings when interest rates drop. Instead, use those months or years of low interest to keep paying what you are used to during the higher rates.
You won’t notice any difference in your lifestyle, except when you find yourself paying off your mortgage 5 or 10 years earlier. You also won’t notice the pinch so much when interest rates start to creep up again.
A pay rise or a promotion at work can also help. Instead of going out and financing a new car with your windfall, keep driving the old reliable and put the extra funds into your mortgage instead. Always check with lenders first in case they have penalty rates for overpayments. Before paying extra into your mortgage, get rid of your most expensive debts first, like credit cards and personal loans.
4. Change to An Interest-Only Mortgage
An interest-only mortgage may not be ideal in most circumstances, but it could work in your favour if you are expecting an inheritance or some other lump sum in the future. It will need to be significant enough to pay off the outstanding amount.
Interest-only loans aren’t as easy to come by as they used to be. They are often only available under specific criteria, such as having a significant amount of equity in your home. Mortgage platforms like Habito or ROSHI – the home loan marketplace, have access to preferred interest-only rates and can help with the initial leg work.
Remember that an interest-only loan doesn’t let you off the hook for the mortgage; you will have to pay that out eventually.
5. Get A Mortgage with Daily Interest Calculation
Banks use different strategies to maximize their return at your expense, and one method is to calculate interest payments annually or bi-annually. This means that you often end up paying interest on the principle that you have been paying off for the last few months.
A daily interest calculation means that every payment has an almost immediate effect on reducing the principle and reducing interest payments. Daily interest calculation charges can save you thousands of pounds, and banks may not like to talk about them, so make sure you ask.
6. Get Rid of Mortgage Insurance if You Can
Mortgage insurance is tacked onto your financing if your deposit was less than 20% of the property’s value. You should be able to cancel your policy when you pay off 20% of your mortgage. Lenders will likely keep this quiet while happy to carry on charging the premium, so you will have to ask them to do this for you.
7. Get Off The Standard Variable Rate Loan if You Can
The low-interest introductory period is always an attractive number to lure people in, but it only lasts for a small fraction of the mortgage term. After that, it will likely switch to a standard variable rate (SVR). Lenders are free to choose their own SVR values, which means you pay more than you should. The system works well for the banks because most customers won’t be bothered to shop around for the best deals every few years. But if you do, you can save a significant amount.