Mortgage Advice

10 Mortgage Tips for Saving Money

These are a few quick suggestions for making sure you get the best mortgage deal and avoid paying unnecessary charges and interest payments

1. Pay off a Mortgage As Quick as you can.

The sooner you can make extra mortgage payments the better off you will be. Here there are a few examples of how an extra payment of £1,000 at the start of your mortgage term can make a big difference to reducing the total cost of your mortgage. Note, making extra payments to your mortgage is often a much better investment than saving money in a bank for your retirement. However, if you are a first time buyer with a large mortgage, you may find that your mortgage payments take up a high % of your monthly income and therefore, it is very difficult to make extra mortgage payments, in these circumstances it may be wise to even have a longer mortgage term to keep your mortgage payments realistic. We can’t say the ideal mortgage term because it depends on individual circumstances, but the general principle is to keep the repayment term as short as reasonable.

2. Make Use of Your Current Account.

Current account mortgages have become more popular in recent years and with good reason. They are particularly advantageous for homeowners with sizeable savings in their current account. Current account mortgages are also called offset mortgages because any savings in a current account are automatically used to reduce your mortgage balance. Therefore your savings are automatically used to reduce your mortgage balance and save you interest payments. As a further advantage you will not have to pay tax on interest from your bank account.

3. Avoid Lethargy.

Many millions of homeowners pay more than they need to simply because they don’t take advantage of the opportunity to remortgage to a better deal. Mortgage lenders invariably charge a higher interest rate to loyal customers. However, as soon as you indicate a willingness to move they will offer you a better deal to keep you. As soon as an introductory deal ends check out the various different options and move your mortgage to the lowest paying account.

4. Mortgage Insurance.

To guard against temporary losses of income it is important to have some kind of insurance. This can either be a direct mortgage insurance which protects your mortgage payments or you could choose insurance which gives you a general income in case of losing your job. Unlike home insurance, Mortgage insurance is not required, but it is highly guaranteed to avoid repossession.

5. Be suspicious of Deals too Good to be True.

The media has extensively covered the subprime mortgage problems, in particular the problem has involved badly sold mortgages. These are mortgage products which have attractive introductory deals but then become very expensive. As with any financial product it is important to understand all the implications and small print. If you take out a mortgage make sure you know what happens when any introductory deal ends. In particular, look for mortgages where it is easy to move to a better deal after a certain time; it is best to avoid any deal which ties you down to long periods with one mortgage dealer.

6. When is A mortgage better than Renting?

In the long term buying a house with a mortgage offers a long term investment. At the end of your mortgage term, you will have an asset and can live rent free in your retirement. Therefore, if you can afford the extra cost of mortgage payments then a mortgage is more desirable than renting. However, if you find it too difficult to get a mortgage or the mortgage payments are too high, it is worth saving towards a bigger deposit. In an era of stagnating prices it will hopefully become easier to afford a mortgage in a few years.

7. Interest Only Mortgage?

An interest only mortgage means you have to find another investment scheme to pay off your capital mortgage. In practise it is favoured by people who wish to keep their mortgage payments as low as possible. It allows for greater flexibility in contributing towards another investment scheme. The danger is that homeowners can fail to make sufficient alternative investment decisions meaning at the end of 30 years you still owe money.

8. Equity Withdrawal / Loan consolidation

One benefit of having a mortgage is that you can use your equity to take out more borrowing. This extra mortgage lending is typically at a much lower interest rate than other types of borrowing. For people with expensive debts such as credit card loans, this can save alot of money in interest payments. However, equity withdrawal is not without its dangers, especially if house prices fall. It does make sense to consolidate expensive loans, but bear in mind you should try to solve the problem of excess spending and debt rather than just pile it onto your mortgage and create potential for loan defaults in the future.

9. Independent advice

If you are bewildered by all the options and advice it makes sense to take advantage of independent advise. Mortgage brokers can help you find the best mortgage product. They will either charge you directly or take a commission from the product that they sell you. Mortgage advice can be found online or on the high street.

10. Don’t lose Your mortgage

Once you have a mortgage it is important to avoid defaulting. This requires careful planning and avoiding overspending and accumulating unnecessary debts. See some tips for a frugal lifestyle here.