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Mortgage payments can cost you as much as 50% of your lifetime earnings. However, you can save a substantial amount of this money by being smart with your mortgage payments. The math is simple, as are these tested and proven tips on saving money on your mortgage payments:
1. Pay Down Your Mortgage Over a Shorter Period
It is always advisable to pay off your mortgage over a shorter period if you can afford it. It will help you save money in two ways. First, you will pay less in total interest payments by making fewer payments. Additionally, your lender will be more willing to renegotiate a better interest rate.
Suppose that you are repaying a mortgage of £200,000 at a 4% interest rate. Repaying the mortgage over a period of 30 years will cost you about £143,000 in interest payments. However, cutting the repayment period to half (15 years) will save you as much as £77,000.
Repaying your mortgage quicker will also free you from debt sooner than anticipated. On that note, it is also advisable to repay any bridging loans as fast as possible to avoid overburdening yourself.
2. Avoid Paying for Mortgage Insurance Twice
Most people pay again for their mortgage insurance every time they change lenders. This is unfair, considering that the insurance cost is added to your mortgage loan. You can avoid the extra insurance payments by notifying your new lender of your earlier payment.
However, this only works when the loan amount and repayment periods remain constant. Additionally, you will need the insurance certificate number as proof of the earlier payment.
3. Apply for an Offset Mortgage Plan
An offset mortgage plan allows you to link your mortgage to your current savings account. Your savings offset the mortgage’s interest rate, effectively reducing the amount paid in interest payments. This plan can also reduce your total monthly payments, depending on the mortgage, savings amounts, and interest rate.
However, you will need to make a larger cash deposit on your mortgage to qualify for an offset mortgage plan. Additionally, your savings will not accrue any interests. Fortunately, you will have full access to your savings.
4. Refinance to Lower Rates
Your lender will offer you a fixed interest rate for the first two or three years of your mortgage repayment period. However, the rates will change to standard variable rates, which can be as much as twice the fixed interest rates. Fortunately, you can revert to a lower fixed interest rate by remortgaging your loan.
5. Recast Your Mortgage
Recasting your mortgage essentially entails reducing the repayment period. It helps save money in two ways: lowering the interest rate and reducing the number and size of monthly payments. However, recasting your loan will require making a lump sum payment on the principal.
Don’t Pay a Penny More!
You can ease the burden on your mortgage loan by utilizing these tips. These tips will help you save thousands of pounds and reduce the repayment period. It is also advisable to consult an accountant to help you identify more money-saving opportunities.