Saving money on your mortgage
Shopping around
for mortgages
is so popular these days
that many people
can be excused for thinking that switching lenders is the
only way to save money on
your home loan.
But there is a much easier way that does not require phone calls, computers connected
to the
internet, or trips
to your bank or building society.
Did
you know, for instance, that making
overpayments on your mortgage can
slash thousands
of pounds
off your interest bill?
Additionally, it will cut the
length of time taken
to repay your home
loan so you get to own your home sooner.
Imagine, say, that you have a 100,000 repayment mortgage, with a
25-year term and an interest rate
of 6%.
Your monthly payments will
be 644, and after 25
years you will have paid
back a
total of 193,290. In other words you will have paid back 1.93 for every pound borrowed.
If, however, you were to overpay your mortgage
by just 50
each month, your total payment would be reduced to 177,279 -- a saving of over sixteen grand in interest. Furthermore, this overpayment shortens the length of the mortgage by 45 months, which
means almost four
extra years of bliss.
Its is worth being prudent
though and
ensuring that your will not be penalised by your
lender for changing your
standing order or making overpayment. In the main, most flexible mortgage lenders will allow you to make overpayments of
up to 10% each year. But if your lender doesn't allow this, you have another trick up your sleeve!
Lessening the term of your mortgage from 25 years to 21 years would increase your payments in exactly the same way as overpaying by 50 each month. Mind
you, this is a much harsher way to do it because payments are fixed. However, it doesn't prevent you from increasing your term again, should you need to, by simply writing to your provider.
At the end of the day, paying off your mortgage early is simply the best and least risky ways of saving money.
By making overpayments to your mortgage of around 6%, your money would be working harder than if you had invested it into a savings account with 7% earnings.5% for a basic-rate
taxpayer. For a higher-rate taxpayer, this risk-free and tax-free rate is equivalent to 10%, which is
practically unbeatable!
Many people
forget that even though we sign up for a
25-year mortgage term there is no earthly reason why we have to stick to this. If you have
any extra cash each month, using it against your mortgage can make a huge difference and it can save you thousands of pounds in interest each year.
Good luck on removing that mortgage millstone from around your neck!
Peter Spyr