Cut your mortgage costs

Northern RockPA

You would be forgiven for thinking that right now your mortgage is the one thing you don't have to worry about. While the cost of everything else is going through the roof, there's every likelihood that your mortgage costs are lower than they have been for years.

However, neglecting your mortgage now would mean missing a golden opportunity to cut your mortgage costs dramatically over the long term.There are a few things you can do right now to save yourself money in the long run.

1. Fix

While rates are so low - and with the experts predicting they will remain that way for some time to come - it's tempting to stick to a variable rate mortgage and get the lowest rate possible.

However, it's worth bearing in mind that these same predictions mean the price of fixed rate mortgages has fallen too. Nationwide and the Post Office recently joined the rush to cut their fixed rates, and many deals are now below 4%. First Direct, for example, offers borrowers with a 35% deposit a 3.99% rate.

If you can fix for five years then there's every chance that you will find yourself on rock bottom rates when the economy begins to turn a corner and rates start rising again. Of course, there's always the risk that rates will take more than five years to rise again, in which case you will have fund yourself paying over the odds. However, the commentators are not predicting a full five years of economic gloom.

2. Shop around

Mortgage rates have been at long-term lows for such a long time that many people are now sitting on their lender's SVR. In recent weeks, however, those have started to inch up, so it pays to look around.

You can even get rates under 4% for 90% mortgages now, and if you have a more sizeable chunk of equity you can easily pay less than 3%. With some SVRs well over 5% it may be worth the hassle of remortgaging.

3. Overpay

Of course this is easier said than done, and some mortgages don't allow it. However, if you have the flexibility to overpay then this is a golden opportunity. If you can find a way to squeeze a bit more life from your household budget, the savings are remarkable.

If, for example, you have a £100,000 mortgage at 6%, overpaying by £100 a month could save you almost £27,000 and wipe six years off your mortgage. There's little doubt that your mortgage costs £100 less than it did before the credit crunch, so in theory it should be possible to make the most of this opportunity.

4. Plan for change

Overpaying or switching to a fixed rate mortgage have the added benefit that they protect you when interest rates eventually rise again.

You don't have to take either of these approaches, but it's worth avoiding the crime of complacency. At some point in the future interest rates will rise again. While you have time and space to think about it, you need to make a plan for how you will cope.

Where will you find the extra money? Will you need to change mortgages? Should you do it in advance? Will you be able to afford the mortgage at all? Is a more drastic solution worth considering - like moving or bringing in a lodger?

For every mortgage problem there is a solution, it's just that it's hard to find when you leave it to a moment of crisis. So while rates are so low it pays to plan ahead, so you have something in the pipeline for when rates rise again.
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