How can I cut my mortgage payments?

How can I cut my mortgage payments?
Homeowners on variable rate mortgages, or who are approaching the end of fixed rate deals, are facing big jumps in their mortgage payments - but there may be ways to bring monthly costs down.

Seeing your mortgage bills suddenly increase - often substantially - can be extremely worrying, so it’s well worth giving your finances a thorough review to see if you might be able to reduce your payments. Here are our top tips to help you keep mortgage costs to a minimum.

1) Don’t sit on your lender’s standard variable rate

If you’re currently on your lender’s standard variable rate or are about to roll onto it when your existing mortgage deal ends, start looking for a new deal as soon as possible. Standard variable rates are usually much more expensive than other mortgage rates, so you could make big savings by moving to a more competitive deal.

If you’re still tied into your current mortgage, you can start looking up to six months in advance for a new deal. If you’d rather stay on a variable rate than a fixed rate, a tracker mortgage will be a better option than staying on an SVR, but switching to either type will could still save you money.

2) Think about extending your mortgage term

The longer your mortgage term, the cheaper your monthly payments will be, so extending your mortgage term can be a good way to alleviate financial pressures temporarily.

Bear in mind, however, that even though opting for a longer term will reduce your monthly payments, you’ll end up paying much more interest overall, so this should only ever be considered a short-term solution and ideally you should reduce your term again when you’re back on track financially.

3) Switch to interest-only

If your mortgage is on a repayment basis and you’re struggling to cover your monthly payments, you might want to consider switching it to an interest-only basis for a short period of time to bring payments down.

Again, this should only be a temporary option, as if your mortgage is interest-only, you won’t be paying back any of the capital you owe, so your debt won’t reduce over time. Under the government’s new Mortgage Charter, which it has agreed with lenders representing 85% of the residential mortgage market, lenders should agree to allow homeowners to switch to interest-only for up to six months, or to extend their mortgage terms by the same length of time. You can find out more about the Mortgage Charter here.

4) Make overpayments if you’re able to

If you can afford to, overpaying your mortgage by even a small amount can make a difference to your monthly costs and the overall amount you’ll pay in interest. This can be an especially effective approach if the interest rate on your mortgage is higher than the rate your cash can earn if it’s in a savings account.

The more of your mortgage you can pay down, the more likely you are to fall into a lower loan to value (LTV) bracket, giving you access to a wider choice of mortgage deals at better rates compared to if your LTV is higher.

Most lenders will allow you to overpay up to 10% of your mortgage balance each year without penalty, but always check your mortgage’s terms and conditions carefully to see whether there are different limits on how much you can overpay by.

Take a look at our calculator to see how much you could save by overpaying.

5) Consider an offset mortgage

Homeowners who have a decent chunk of savings available, , might want to consider offsetting some of this money against their mortgage to reduce their interest costs.

Linking your savings to an offset mortgage means you only pay interest on the amount that’s left after your savings balance has been deducted. You can still access your savings whenever you need to, but your mortgage interest costs will be lower as you’ll only be paying interest on your mortgage minus the amount you have in savings.

For example, if you have a £150,000 offset mortgage and £50,000 in savings, you’d only have to pay interest on £100,000, as this is the difference between the amount you’re borrowing and the amount you have in savings. You can usually decide whether you want this reflected in lower monthly mortgage payments, or keeping your monthly payments at the same level, paying it off more quickly and reducing the term of your mortgage. Our offset mortgage calculator can help you see how much you might be able to save with an offset deal. Seek advice from a broker if you need help deciding which type of mortgage is likely to be right for you.

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