How to save money on your mortgage
In today’s financial climate, many of us are looking for ways to cut costs. The cost of living crisis means we’d all like to make our money go a bit further. There have been numerous increases in the Bank of England base rate and potentially more rises are in the pipeline. Reviewing your mortgage at regular intervals makes financial sense, but in the current climate it is arguably more important. In this article, we consider how to save money on your mortgage.
NB. This article provides a basis to help you consider how you can save money on your mortgage. It is not intended as financial advice. If you are not confident about making decisions about your mortgage, consider consulting an independent financial advisor.
Check your current mortgage rate
The first thing to do is to check your current mortgage type and rate. You can do this via your mortgage statement or by contacting your mortgage lender. You may be on an SVR (standard variable rate) or you may be on a special deal for a fixed, discounted or tracker rate. If you are on a standard variable rate, you will almost certainly be able to save on your monthly payments by remortgaging. This is essentially moving your mortgage to another lender to get a better deal.
If however you are on a special deal, you need to know when this ends, whether you can overpay your mortgage (and by how much) and also the penalties if you wanted to end the deal early. See our checklist for contacting your lender below.
Are you on the Standard Variable Rate (SVR) or does current mortgage deal ends within 3-6 months?
If you are on the SVR, or if your deal ends soon, the first thing to consider is to remortgage as soon as you can. This may sound scary, but it is essentially just transferring your mortgage loan from one provider to another, in order to get a better deal and save money.
If you current special deal (fixed, discounted or tracker) is due to end within the next six months, it’s the perfect time to start researching your options and comparing costs with other lenders. You can easily compare other deals online and work our your new repayments using the rate on the deal that appeals to you. If you really can’t bear the thought of remortgaging, you can also compare current deals that are offered by your current lender. These tend to be simpler to arrange.
Does your current mortgage deal have more than 6 months remaining?
There is likely to be a Early Repayment Charge (ERC) if you remortgage before your current deal expires. You can find out what this is by checking your mortgage offer letter or by contacting your lender. It’s unlikely that you will save money by remortgaging, as any saving should be offset against the ERC for your current deal. However it is likely that you can still save money on your mortgage by making overpayments. This could be a lump sum (if you have savings available) or it could be by paying a little extra each month. Either way, overpaying your mortgage will have the effect of reducing the term of your mortgage and reducing the total amount of interest that you pay. Consider the checklist below when contemplating overpayments on your mortgage.
What to consider before overpaying your mortgage
- Do you have other outstanding debts which are more expensive? If so, it may be sensible to repay these first.
- Can you afford a lump sum payment? Have you got enough money for an emergency fund? Ideally, set aside 3-6 months wages in case you need to access money quickly for a home repair, if you lose your job, etc.
- Are there any penalties for making overpayments, what are they, and when do they apply? For example, there may be an overpayments limit of 10% of the balance per year, but when does the year start?
Checklist when contacting your lender
These are the questions to bear in mind when you contact your mortgage lender.
- What is my current mortgage rate?
- How long is left to run on my mortgage (mortgage term)?
- Am I on the SVR or a special deal?
- If on a special deal, when does the special rate end?
- If on a special deal, how much can I overpay my mortgage by, without incurring a penalty?
- If on a special deal, what are the penalties for ending the deal early?