Homeowners – Five Steps to Cutting Costs for Homeowners
Nisha Vaidya, Mortgage Expert at Uswitch, explains how homeowners can use low interest rates to their advantage and help make their mortgage more affordable.
UK mortgage interest rates are at an all time low, but many homeowners are still struggling; in fact, one in ten homeowners report being unable to pay their mortgage payments in the past 12 months.
Now is the time for homeowners to take action to make their mortgages more affordable. And the good news is that there are several options available to help lower those monthly repayments, though an overpayment isn’t an option.
1) Shop around! Avoid going back on your standard variable rate (SVR)
Once your minimum mortgage term is over (usually after two or five years), you typically access your lender’s SVR. These rates are higher than fixed rates and should be avoided whenever possible. When your deal comes to an end, you should consider your remortgage options, with the goal of moving to a cheaper deal if you can.
2) If you can remortgage sooner, don’t wait
With interest rates so low right now, it’s a great time to remortgage and get a fantastic fixed rate deal. Therefore, clients might want to act quickly on this, as the Bank of England has previously said interest rates may rise to offset rising inflation.
Contact your lender or review your mortgage statement to see if you are near the end of your current contract. If you are within six months, contact your lender to see if there will be any exit or prepayment charges that might arise, before you get a new mortgage and take advantage of the low interest products before. that the rates do not increase.
3) Extend the term of your mortgage to reduce your monthly payments
If re-mortgage isn’t an option for you right now, you may be able to lower your monthly repayments by increasing the overall term of your mortgage. In the short term, it can give you a bit of a break if you’re struggling to make ends meet. However, be aware that you will be tied to your payments for longer and pay more in the long run as you will be charged interest in the longer term.
4) Temporarily switch to interest-only payments
If you’re having trouble repaying, you may be able to change your mortgage to interest-only. Compared to a repayment mortgage (where you pay off both the loan and the interest) with an interest-only payment, you only pay the interest on the loan.
This should only be a temporary change, as you won’t reduce the total loan amount and will have to repay the overall principal at the end of your mortgage term.
5) Check if you have insurance coverage
Another way to cut costs if you’re worried about mortgage payments is to check to see if you have insurance coverage. Mortgage Payment Protection Insurance (also known as Accident, Health, and Unemployment Insurance) can often help you pay off your mortgage if your income has declined due to illness or recent layoff.
If you are unsure if you are covered, check your mortgage documents or ask your lender or broker for advice on your insurance coverage as soon as you set up your mortgage plan.
*Nisha Vaidya is a Mortgage Expert at Uswitch, a Price Comparison and Switching Service