Amy Kadir, Mortgage Broker - Could you reduce your mortgage payments?

Wednesday 14 June, 2023

How to save money on your mortgage?

There are two options you could consider: Overpay on your mortgage or take a shorter mortgage term.   With mortgage rates increasing perhaps it is time to review your mortgage product to see if you can overpay on your mortgage. The other option if you are due to remortgage is to consider taking out a mortgage with less years to maturity so you don’t pay interest for as many years.   If you want to take out a mortgage where you can overpay or want to check the terms & conditions of your current mortgage product to see if it is possible, contact our Lonsdale mortgage brokers on 01727 845500.  

When should you overpay your mortgage?

In the last year our customers have been discussing overpaying their mortgage with our Lonsdale Mortgages broking team.  As mortgage lenders price their mortgages at a higher rate than the bank savings rate if you are paying the mortgage lenders standard variable rate you will normally save money in the long-term if you overpay your mortgage rather than save excess income into a savings account.  Not all mortgage products will allow you to overpay your mortgage, and you might have to pay more to purchase a mortgage product with these options, but it is worth reading the terms & conditions, or speak to a Lonsdale Mortgage broker who can review them for you.

How can you reduce the amount you pay on your mortgage?

Amy Kadir, Lonsdale mortgage broker, St Albans, Hertfordshire said:

‘If you are due to remortgage or are a first-time buyer you could also consider reducing the length of your mortgage term rather than overpaying a lump sum off your mortgage to keep the overall mortgage costs lower.  The most common type of mortgage is a capital and repayment mortgage.  If you take out this mortgage you will agree how long you would like to have the mortgage for, the ‘term’ and you pay back monthly repayments until you have paid the mortgage lender both the capital you borrowed and the interest you owe on the outstanding loan.  The ‘term’ you agree is important because if you take out a mortgage for fifteen years rather than twenty-five years your monthly payments will be more expensive as you repay the capital more quickly, but as you won’t have to pay the lender ten years’ worth of interest you will save in the long run.  As interest rates are currently going up this could be quite a significant sum.  We have a mortgage calculator on our website, and you can put in your own requirements. Below is a simple example to show how much extra interest you pay back the longer you have your mortgage.’

Example 1.

You borrow £300,000 for 25 years at 4%

You would pay £3000,00 x 4% for 25 years (12 payments each year)

Total owed to mortgage lender = £475,053

Example 2.

You borrow £300,000 for 15 years at 4%

You would pay £300,000 x 4% for 15 years (12 payments each year)

Total owed to mortgage lender = £399,430

Total saved from taking the same loan for 15 years rather than 25 years = £75,622
 

Amy Kadir, mortgage broker, St Albans, Hertfordshire continued:

‘As mortgage rates have increased so quickly recently it could be worth discussing how much you can pay off each month as it will affect your long-term savings.  If you speak to a Lonsdale Mortgages broker, we can review your income and expenditure to find the best possible mortgage product and mortgage rate for your financial circumstances.  Certainly, if you have extra income available each month that you will be saving or are due an inheritance it could be worth taking a mortgage out for a shorter term. However, it is important that you can re-pay your monthly mortgage payments each month so flexibility might also be a factor in deciding what product to take out.  Our Lonsdale mortgage advisors can access a whole range of mortgage products at different costs and various rates.  Call us now on 01727 845500 if you want to reduce your monthly mortgage payments.’

In Summary…

You can overpay your mortgage to save money in the long-term, or take out a mortgage with a shorter term, so you pay less interest back to the mortgage lender.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments. 

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