How to save money on your mortgage

8 simple steps to save money on your home loan

Iona Bain – Virgin Money Living Mentor

by Iona Bain | Independent Money Mentor

Founder of the Young Money Blog and author of Spare Change

Unless you’re planning on splashing out on a private island or have your eye on a rare and highly prized art collection, a mortgage is likely to be your biggest expense. It’s the monthly outgoing most likely to make you swoon and is a sizable chunk of your monthly outgoing.

Like a bad haircut, however, you’re not stuck with your mortgage deal for ever, you can just change it. One quick snip and it can start to look more attractive. Rather than stick with the same monthly payment you can decrease your bills and financial stresses with a simple change to your deal.

Follow these simple steps to see if you could pay less on your mortgage.

Step 1: Be prepared to switch

Mortgage deals are constantly changing and what seemed great when you first got it might not be suitable for you now. Look around for better deals and be prepared to change your mortgage provider. Whenever your current deal comes to an end or you hear about base rate changes by the Bank of England you should, at least, consider a change. It will almost certainly change how much you pay. Set a reminder on your calendar for three months before your current deal expires and start shopping around. But check whether your current mortgage provider will charge you any early repayment penalties.

Step 2: Check for fees

There is more to your total mortgage than a standard monthly payment. If you do find a new lender, check to see if they will pay for any additional costs such as valuation and transaction fees incurred in your re-mortgage.

Step 3: Negotiate terms

You’re special and your current mortgage lender knows that. Tell them that you’ve found a more attractive lender somewhere else and they might try and fight to keep you. That means offering you better terms to hang on to your business. All you need to do is decide whether to give them another chance.

Step 4: Get a revaluation

When looking for a new mortgage it is essential to have an up-to-date estimate of the value of your property. With that in hand you can calculate your loan to value (LTV) ratio. Divide your outstanding mortgage amount by your property’s current value and multiply by 100 to work out your LTV. Borrowers with a lower LTV potentially have access to more and, importantly, cheaper mortgages.

There are lots of free online valuation tools you can use, such as Zoopla. You don’t need to pay for a valuation to get an idea of what your property is currently worth.

Step 5: Overpay if you can

If your lender offers you the chance to overpay without penalty, take it. The hundreds of pounds you spend now can decrease the length of your mortgage term – and therefore cost – in the long term. Certain lenders will automatically reduce your monthly payment if you choose to overpay. Make sure you request to have your mortgage term reduced instead for the biggest savings.

Step 6: Pay upfront fees straight away

Adding additional product fees to your mortgage repayments might seem like a no-brainer, but it will actually cost you more in the long run as you will be paying interest on them. Pay those upfront fees, upfront.

Step 7: Ask an expert

Using an independent mortgage adviser will help you figure out if re-mortgaging can save you money and how find a deal that best suits your needs. They may also find you a deal you’d struggle to access on your own. If you have become self-employed since taking on your mortgage, for example, you may be subject to stricter lending criteria and a broker can help find favourable rates and deals.

Step 8: Stick or twist

Changing your mortgage might not be right for you. If you only have a few years and a limited amount to repay, for example, it might end up costing more to switch when fees are taken into consideration. Check the Annual Percentage Rate of Charge (APRC), which incorporates fees and ask your current lender for a cost breakdown. Will the short, medium and long-term savings make it worth your while to dive into a whole new set of paperwork?

Follow these tips and you could be well on the way to saving enough for that private island you’ve been wanting. Or, at the very least, for a decent haircut.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.