For many people, mortgage repayments will be their biggest monthly outgoing. With the cost of living rising, this post explains how you can save money on your mortgage and reduce your monthly repayments by remortgaging.
Before we start, it is worth stating that not everybody will be able to remortgage and save money. This article covers the important factors to consider before remortgaging, but you must always seek your own professional advice before embarking on any financial decision.
Let’s dive right in.
- Is remortgaging right for you?
- Is there a better mortgage deal out there?
- Have you analysed your existing mortgage?
- Have you put yourself in the best position to find a good deal?
- Have you considered the additional costs of remortgaging?
- Do you need a mortgage broker?
- What to watch out for if you use a broker
- Avoiding additional costs
Is remortgaging right for you?
The first step to saving money on your mortgage is to seriously consider whether remortgaging is right for you.
Remember, a mortgage is just a deal. Like any deal, you want to make sure that you are getting the best one for you.
There are many reasons why remortgaging might be right for you, including:
- Saving money (most people will fall into this category).
- Your circumstances have changed. Perhaps you’ve been given a pay rise or your partner has just left work and you need to adjust your monthly repayments.
- Your original deal wasn’t what you thought. Perhaps you didn’t understand that your monthly repayments on an interest-only mortgage don’t pay off the principal. Or maybe you were sold an endowment mortgage and have been told to expect a shortfall.
Whatever your reasons for wanting to remortgage, you need to make sure its right for you and your current financial situation. If you’re in any doubt, speak to a professional financial advisor first.
Is there a better mortgage deal out there?
Even if you think you’re ready to remortgage, you need to consider whether a better deal is possible.
- You may already be on the best deal the market has to offer. With the Bank of England rising interest rates faster than any time during the last decade, it may be tricky to find a better rate.
- The early repayment charges on your existing mortgage may negate any savings you make by being on a better deal.
- If you have a bad credit score which means that many deals aren’t available to you. If this is you, do not panic. Credit scores can be rebuilt by taking the right steps.
- If you own a relatively small proportion of your property (i.e. less than 10%). Typically, this will mean that fewer deals are available to you.
Have you analysed your existing mortgage?
Before you start scouring the market for better deals, you need to take stock of your current mortgage arrangements.
You should know the answers to the following questions before you remortgage:
- Will your current lender make you pay an early repayment charge? Remember, remortgaging means paying off your existing mortgage to then borrow from another lender. If your mortgage is still in its ‘Initial Term’ you will likely have to pay an early repayment charge, which can be around £1,000 – £4,500.
- Will your current lender charge you an exit fee? This is an additional £50 – £300 that you must pay to leave your current deal.
- What is the remaining principal on your mortgage? You can find this out by asking your lender or by looking at the documentation you were given when you first took out your mortgage. If you’ve only had your mortgage for a few years, it is likely that most of your repayments will have paid off the interest rather than the principle.
Have you put yourself in the best position to find a good deal?
As the cost of living increases and economic conditions start to waver, lenders are becoming more cautious about who they lend their money to.
As a result, this is not the time to become complacent. Even though you have had a mortgage before, this doesn’t mean you are entitled to a better one in the future. You need to make yourself attractive to new lenders.
Here are some things you can do to improve your position:
- Take a look at your credit score. This can be done for free using with providers like Experian or ClearScore, and it won’t impact your credit score. Improving your credit score is a whole other topic in itself, but you should check your score monthly for any changes. Staying on top of your credit score means you can resolve any issues as they appear.
- For people who are employed, it is fairly easy to prove that you can afford your mortgage because you are contractually entitled to a salary. If you’re self-employed or your pay varies, start building a folder of documents which proves how much you earn. The more information you have, the more convinced the lender will be that you can afford the new deal.
- Make sure you have enough saved up to get the best deal. Sometimes, overpaying your existing mortgage to have slightly more equity in your property can make you eligible for a better deal. Even something as small as £100 – £500 can make a difference.
Have you considered the additional costs of remortgaging?
Just like when you took out your first mortgage, it is very likely that there will be fees for taking up a deal with a new provider.
The most common of these are:
- A mortgage fee charged by your new lender for accepting the new deal (roughly £500 – £1,500).
- A booking fee to reserve the deal. These are more common when interest rates are on the rise, as they are now. This usually costs between £100 and £200.
Do you need a mortgage broker?
However, you should first consider the following points before racing to these sites:
- Will your individual circumstances require you to get expert advice. For instance, is your property unlikely to pass a lender’s valuation or do you have a chequered credit history? Brokers can be invaluable in circumstances like this.
- Do you understand what the price comparison websites are telling you? To get the best results, it is a good idea to sort deals by the entire initial term cost. This will take into account any upfront fees and give you an idea of how much you will pay before you can remortgage again.
- Have you asked your current lender for a better deal? Sometimes your existing lender will offer you a preferential rate to stop you from leaving.
What to watch out for if you use a broker
Brokers can be a real help if you haven’t got the time or inclination to do your own research. They can even have access to special deals which you wouldn’t be able to access otherwise.
However, you should consider the following questions when choosing your broker:
- Which deals will the broker search? If you have a good history of borrowing, you might miss out on good deals if you use a broker who specialises in finding deals for people with a low credit score.
- Will the broker charge you a fee? Some brokers work for free and you might not be getting a better service just because you’re paying for it.
- How is the broker paid? Do they earn commission by selling you add-ons or are they salaried? A salaried broker has less incentive to push expensive products on you that you don’t really need.
- Will you earn cashback by using a certain broker? When I took out my first mortgage, I found the deal I wanted online but still chose to set it up through a broker because they offered me £250 for going through them. This can be an easy way to reduce your initial costs.
Avoiding additional costs
Many lenders will try to sell you financial products in addition to your new mortgage.
For example, a condition of most mortgages is that you have to have home insurance. The lender will therefore try to sell you home insurance as part of your deal.
You are not obliged to buy any insurance products from your lender and you can often find cheaper insurance deals elsewhere.
I’ve written about saving money on insurance before, but the basics are to use price comparison websites and to carefully consider the excess that you will need to pay in the event that you need to make a claim.
Your employer will sometimes provide life insurance and income protection as part of your benefits package, so make sure to check your entitlements before you buy any new policies.
Saving money on your mortgage can be easy, but you need to take the right steps.
Firstly, consider whether you are in the right position to remortgage. Secondly, make sure you put yourself in the best position to find the top deals. Thirdly, add up the additional costs you will incur by switching deals. Lastly, make sure to use the right resources to find the best deal and don’t be pressured to buy financial products you don’t need.
Would you add any other top tips to save money on your mortgage? Leave me a comment below with your thoughts and questions.
My good friend and blogging colleague, Nick, from Pounds and Sense, has written a terrific article on how to get a mortgage if you are self-employed in the UK. If you are interested in reading more on this topic, you can find a link to his post here.