Following the recent Covid Pandemic, the UK is in economic turmoil, with the cost of living at an all-time high. Many people are seeking to minimise their expenses, and cutting down on mortgage costs is an option for householders. If you are looking at ways to reduce mortgage payments, carry on reading, this article is for you.
- 8 Ways To Reduce Mortgage Payments
- Aiming at the Best Mortgage Rates
8 Ways To Reduce Mortgage Payments
Reviewing your existing mortgage payments is well worth considering in the current economic climate. Equally, first-time mortgagees should take extra care to obtain the best deals. With all this in mind, here are 8 ways to reduce your mortgage payments.
1. Check Whether Your Mortgage Is Set on a Standard Variable Interest Rate
Often mortgage companies attract customers by offering a low introductory interest rate for a period of time. After the expiry, the mortgage moves on to a variable interest rate which is set at a high rate. The prudent advice is to check, and if a homeowner is on a standard variable rate, they should switch to a new deal (i.e., change mortgage).
Luckily standard variable rate mortgages do not have a lock-in period, and it is easy to re-mortgage. Talk to a mortgage broker or check out the various price comparison sites (such as Moneysupermarket) to understand the deals on offer.
2. Extend the Length of the Mortgage
Another option is to extend the length of the mortgage by paying it off over a longer period of time. Not applicable to interest-only mortgages, other types of mortgages (such as repayment, fixed-rate, or variable-rate) can take advantage of this scheme.
Offered by all major banks such as Halifax, HSBC, Lloyds, and Nationwide, extending the mortgage over a longer time frame will enable the mortgage holder to pay less each month. The downside is the need to pay interest for a more extended period, and the overall mortgage costs will increase.
You can also read, “How to Open a Bank in the UK“.
3. Switch to an Interest Only Mortgage
With an interest-only mortgage, the holder pays off the interest on the capital acquired. No payments are made towards the actual sum of money borrowed. At the end of the mortgage period, there is a requirement to pay back the sum of the loan.
With other types of mortgages, payment is made towards the interest and the capital borrowed. These types of mortgages incur a greater monthly payment than an interest-only mortgage. For those finding it hard to meet the monthly payments, an interest-only mortgage will reduce the costs. Mortgage holders can, at a later date, change mortgage that is in line with the current arrangement.
4. Take Out a Mortgage Holiday
If a mortgage holder is struggling to make their monthly payments, taking out a mortgage holiday is an option. The UK’s Financial Conduct Authority states that all providers should take reasonable steps to help those in financial difficulties. Talk to the mortgage provider, and it may be possible, through a mortgage holiday, to defer the monthly payment for some time. When the financial condition improves, the outstanding amounts can be repaid.
Of course, the interest payments will build up during this period, and the monthly payments will be higher when the payment commences.
5. Cut Down on Mortgage Insurance
While obtaining a mortgage, people are often encouraged to take out various insurance policies. These could include contents insurance, life insurance, buildings insurance, income protection insurance, and critical illness coverage. The payment amounts change with time, and by using different companies it may be possible to decrease costs.
Our advice is to check documents, look at the premiums and consider switching to a better deal. Those obtaining a mortgage for the first time may want to limit the number of insurance policies as part of the mortgage plan.
6. Enhance Your Credit Score
Mainly applicable to people taking out a mortgage for the first time, those with the best credit scores are offered preferential interest rates. The situation is applicable not just to mortgages but to all manner of financial products. Therefore before taking out a mortgage, consider improving your credit score. Measures will include paying off credit cards, paying bills on time, fixing errors on the credit report, etc.
7. Make Over Payments
For people in a healthy financial situation, some steps can be taken to cut down on mortgage costs. One way is to start making overpayments.
The provider may set the monthly payment at £1500 per month for example, and it could be possible to make an overpayment. Checking with the lender is necessary as it may incur penalty fees. Most providers are accommodating though there may be limits on the possible overpayments.
8. Take Out an Offset Mortgage
An offset mortgage is linked to a person’s savings account. Some people have savings but do not wish to use them to reduce the borrowed mortgage. An offset mortgage sits alongside the outstanding capital without reducing the mortgage amount.
For example, a person may borrow £200k towards the mortgage and use £20k to offset the mortgage. As a result, interest is paid on £180k rather than £200k. With an offset mortgage, it is possible to dip into the savings as and when required. Such a scheme is a great idea at a time when interest rates are not going up significantly for savers.
You might be also interested in, “How to Apply for Housing Benefit“
Aiming at the Best Mortgage Rates
Due to the harsh economic conditions, many people feel the financial pinch more than ever. Given the mortgage is one of the biggest household bills, it is prudent to reduce these payments. Be sure to check all your documents and shop around to find the very best deals.