If you’re hoping to improve your finances this year, there’s never been a better place to start than by taking a look at your mortgage. Not only is your mortgage repayment likely to be your largest monthly expense, a significant portion of it may be made up of interest, rather than capital. As we enter a new year, why not take this opportunity to review your home debt and implement a few mortgage-related resolutions?
Get to know your mortgage like the back of your hand
Do you know what interest rate you’re paying on your mortgage? If the answer’s ‘no’, you’re not alone. According to a 2016 survey, one in three Brits have no idea what their interest rate is.
It’s not only the interest rate that leaves many people scratching their heads. Millions of people are unable to identify whether their mortgage is fixed or variable rate while others aren’t sure whether it’s a repayment or interest only deal.
Familiarising yourself with your mortgage debt is the first step to improving your situation. Set some time aside to ask yourself the following questions:
- What’s your interest rate?
- How much money do you owe?
- What is your mortgage term?
- Do you have a fixed rate deal?
- Does your lender allow overpayments?
If your fixed rate deal has ended already and you’ve been moved onto your lender’s standard variable rate (SVR), you could be forgiven for paying little attention to your new interest rate. However, the transition to your lender’s SVR could see you paying more money than necessary. And if you have no idea what rate you’re paying, how can you possibly improve it?
Getting to grips with your mortgage could help you save thousands of pounds over the course of your entire mortgage deal.
Remortgage your property
Once you know your current mortgage deal like the back of your hand you can start researching new mortgage products in search of better deals.
Remortgaging your property can be a great way of improving your finances and ensuring you’re not paying more money than necessary. It can allow you to do the following:
- Increase your monthly repayments so you pay off your loan quicker
- Decrease your monthly repayments to lower your expenses
- Free up equity to be spent on other costs
- Pour more money into your loan to reduce your debt
Overpay your mortgage
If you want to improve your finances but you’re unable to remortgage, it may be worth overpaying on your mortgage instead.
By making overpayments, you can reduce the amount of interest you owe and pay off your debt sooner. Overpaying could save you thousands of pounds over the course of your life.
For example, let’s imagine you have a mortgage debt of £110,000 over the course of 35 years and an interest rate of 2.09%. If you were to make a recurring overpayment of just £15 a month, you’d save £2,793 in interest and you’d pay off your debt 1 year and 11 months earlier than originally planned.
If you were to bump up your overpayments to £150 a month, you’d save £17,825 in interest and you’d pay off the mortgage 12 years and 11 months earlier.
Most lenders will allow borrowers to overpay by up to 10% of their existing mortgage debt, though it’s worth checking to see how much flexibility you have.