Buying a home is one of the biggest financial commitments you’ll ever make. But what if you could save thousands on your mortgage? At SGL Accountancy, we know how important it is to keep costs down. That’s why we’ve put together this guide to show you some clever ways to reduce your mortgage payments and save money over the long term.
1. Refinance Your Mortgage to Get a Better Rate
Consider Refinancing for a Lower Interest Rate
One of the quickest ways to reduce your mortgage payments is by refinancing. Refinancing means replacing your current mortgage with a new one, ideally at a lower interest rate. This can save you thousands of pounds over the lifetime of your mortgage.
Benefits of Refinancing:
- Lower monthly payments
- Reduced total interest over the life of the loan
- Opportunity to change the mortgage term
When to Consider Refinancing
You might consider refinancing if your credit score has improved, if interest rates have dropped since you first took out your mortgage, or if you have a variable rate and want to switch to a fixed rate for stability.
2. Overpay Your Mortgage When You Can
Make Extra Payments to Reduce the Principal
Overpaying your mortgage is a powerful way to reduce your total interest costs and shorten your mortgage term. By making extra payments towards the principal, you can save thousands over time. Even small, regular overpayments can make a big difference.
Simple Ways to Overpay:
- Round up your monthly payments to the nearest £50 or £100.
- Make a lump sum payment when you receive a bonus or tax refund.
- Set up a standing order for a small amount each month.
Overpayment Strategies and Potential Savings
Making overpayments on your mortgage is one of the most effective ways to reduce the total amount you pay in interest and shorten your mortgage term. Here are three simple ways to overpay, along with examples that show how much you could save over the lifetime of your mortgage.
Example Assumptions:
- Average Mortgage Amount in the UK: £200,000
- Standard Interest Rate: 4%
- Mortgage Term: 25 years
- Monthly Payment: £1,056 (based on the above assumptions)
Overpayment Strategy | Monthly Overpayment Amount | Total Interest Saved | Years Reduced from Mortgage Term |
Rounding Up Payments | £50 | £7,362 | 1.5 years |
Small Regular Overpayments | £100 | £13,962 | 3 years |
Lump Sum Payment Once a Year | £1,000 (once a year) | £11,043 | 2 years |
Combined Approach (Monthly + Annual) | £50 (monthly) + £1,000 (annual lump sum) | £19,647 | 3.5 years |
Breakdown of Overpayment Strategies
- Rounding Up Payments: By simply rounding up your monthly payment to the nearest £50 or £100, you can make a noticeable impact on your mortgage. For example, if you currently pay £1,056 per month, rounding up to £1,100 means an extra £44 a month towards your mortgage. This approach can save you £7,362 in interest and reduce your term by 1.5 years.
- Small Regular Overpayments: Setting a small, regular overpayment can add up significantly over time. For instance, overpaying £100 each month will save you £13,962 in interest and reduce your mortgage term by 3 years.
- Lump Sum Payments: If you receive a bonus, tax refund, or any unexpected windfall, consider making a lump sum payment. Paying £1,000 once a year can save £11,043 in interest and cut down your mortgage term by 2 years.
- Combined Approach: A combination of monthly overpayments and an annual lump sum can maximise your savings. For example, overpaying £50 each month plus an additional £1,000 lump sum annually can save you £19,647 in interest and shorten your mortgage term by 3.5 years.
Tips for Making Overpayments
- Set Up a Standing Order: Arrange a standing order to make small overpayments regularly.
- Budget for Overpayments: Consider including overpayments in your monthly budget.
- Check with Your Lender: Ensure there are no penalties for overpaying your mortgage.
By using these overpayment strategies, you can significantly reduce the amount of interest you pay over the life of your mortgage and potentially become mortgage-free years earlier.
Check for Overpayment Limits
Before making overpayments, check with your lender to see if there are any penalties for overpaying. Some mortgages allow you to overpay up to 10% of the outstanding balance each year without penalties.
3. Switch to an Offset Mortgage
Use Your Savings to Offset Your Mortgage Balance
An offset mortgage links your savings account to your mortgage, allowing you to use your savings to reduce the amount of interest you pay. For example, if you have a mortgage of £150,000 and savings of £20,000, you will only pay interest on £130,000. This can significantly lower your monthly payments and save you a substantial amount in interest over time.
Offset Mortgage Benefits | Description |
Reduces interest payable | Only pay interest on the mortgage balance minus your savings |
Flexible access | Keep access to your savings while reducing mortgage costs |
Shortens mortgage term | Pay off your mortgage faster with the same monthly payments |
Is an Offset Mortgage Right for You?
Offset mortgages are ideal if you have a significant amount of savings that you don’t need immediate access to. They are also great if you want flexibility – you can withdraw your savings whenever you need them.
4. Remortgage When Your Fixed Rate Ends
Don’t Let Your Mortgage Move to a Standard Variable Rate
When your fixed-rate mortgage period ends, your lender will typically move you to a standard variable rate (SVR), which is often much higher than your previous rate. This can lead to a sudden increase in your monthly payments. Instead, consider remortgaging with us to find a new fixed-rate deal that suits your financial situation.
Steps to Remortgaging:
- Review your current mortgage deal
- Compare new deals using our remortgage comparison tool
- Apply for a new mortgage before your fixed rate ends
Benefits of Remortgaging
By remortgaging at the right time, you can avoid a costly jump in payments and potentially secure a lower interest rate. This can result in immediate savings and more predictable payments, which is particularly helpful for budgeting.
5. Negotiate for a Lower Interest Rate
Ask Your Lender for a Better Deal
Did you know you can sometimes negotiate a lower interest rate with your current lender? If you have a good payment history and have seen other lenders offering better rates, it’s worth asking your lender if they can match or beat the rate. Many lenders are willing to adjust rates to retain good customers.
Tips for Negotiating:
- Do your research: Know the current rates in the market.
- Highlight your loyalty and payment history.
- Be prepared to switch if they cannot offer a better deal.
Use a Mortgage Broker
If you’re not confident negotiating on your own, consider using a mortgage broker.
By following these smart strategies, you can reduce your mortgage payments and save thousands of pounds over the life of your loan. Whether it’s refinancing, overpaying, or finding the right mortgage type, there are plenty of ways to keep more money in your pocket.
Disclaimer
At SGL Accountancy, we are not authorised under the UK Financial Services and Markets Act 2000 to provide financial advice. The information provided in this content is for general informational purposes only and should not be considered as financial advice. We strongly recommend that you consult with an authorised financial advisor who is qualified to provide guidance tailored to your specific circumstances and financial goals.