The mortgage, perhaps the biggest outgoing of all for most people. In the current climate, with energy bills are increasing, fuel prices higher than ever and even the price of our weekly shop increasing, most are looking at ways to trim the excess and rein in the monthly bills. With the mortgage being such a large part of your monthly budget, we take a look at how to reduce your mortgage payments.
Before we start, we would like to urge you to seek professional advice – these are just some of the ways in which you could reduce your monthly mortgage payments and may not be right for you.
Get a New Fixed Deal
If you are on a fixed rate mortgage which is due to end shortly, and you haven’t already re-arranged a new fixed rate for when it does end, we urge you to look at your options now. Even if your mortgage rate is fixed until Jan 2023, you can still get a mortgage offer that is valid for six months. This offers you the peace of mind that when the fixed term does end, that you aren’t going to end up spending hundreds more a month than you can afford.
If you are on a fixed rate mortgage term for the next few years, which you took out before the interest rates started to rise, just make sure you know when it ends and how long you have left on your current term.
Take a Mortgage Payment Holiday
During the pandemic in 2020, the government instructed lenders to grant a payment holiday of up to six months to anyone that asked for one. There were many affected by the lockdowns and the impact was far reaching meaning that people needed help with their finances. This scheme came to an end last year however, payment holidays have always been available for those that ask.
If you are keen to take a payment holiday, you need to speak to your lender (who will no doubt be receiving the same request from many others) and see if they will offer you this facility. Use the money that you save as a buffer for the coming months. Lenders are required to do whatever they can to help customers through difficult financial periods.
The downsides of a mortgage payment holiday are that it will show on your credit file meaning that it could impact future lending. It should only be used as a last resort and only if you are confident you will not be making any future loan or mortgage applications.
Extend Your Mortgage Term
Extending the term of your mortgage is preferable to a payment holiday as it will not have an impact on your credit file and could save you enough to make up the additional cost of your energy bills and more. With many mortgages now extending from 25 year to 30 year terms, it is a viable option.
Be warned though, if you extend the term of your mortgage, while your monthly repayments will reduce, you will end up paying more interest over the life of your mortgage. Consider the future impact too – if interest rates are high now, what could they be like in 10 or 20 years?
Switch to Interest Only
While we don’t recommend this as a long term strategy, switching to interest only from a repayment arrangement will save you money each month. You will need to ensure you have the means to pay back your mortgage in full at the end of its term though. It’s only recommended as a short term fix. You may want to consider the option to overpay once you have got through this tricky patch to make up the shortfall in the future.
Overpay Your Mortgage Each Month
So here we are with an article on how to reduce your monthly mortgage payments only to suggest that you over pay but hear us out. If you have savings (leaving yourself enough of a buffer for emergencies), and are still on a fixed rate loan from before the increase in the base rate, you could save a lot of money in the long term by making overpayments now.
Overpaying will reduce the term of your mortgage and the amount of interest you pay. You will also build up more equity in the property meaning that you have more possibilities further own the line on what you buy or how much you need to borrow.
Most lenders offer an overpayment option of 10% a year. Be careful not to pay too much or you could end up facing penalties from your lender. Do not prioritise this over more expensive debts though. You should get rid of your highest interest credit cards, HP agreements and other debts first.
Seek Professional Mortgage Advice
If you aren’t sure which is right for you, and would like to explore all of your mortgage offers, you should take the advice of professionals. The Buzz Financial team have access to the whole mortgage market and have years of experience in helping people find the best financial solutions to suit their needs. Contact us today on 01934 756717 to discover how we can help you.