8 questions every DMP client asks
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What options are there to help you save money on your mortgage, reduce your monthly costs and pay less in the long-term?
If you’re on a debt solution, such as a debt management plan (DMP), then finding ways to reduce a ‘priority bill’ like this will have a big impact on the rest of your budget. If you’re not, and you just want to reduce your monthly outgoings, it’ll still mean the chance of having ‘more money in your pocket’.
After all, for most people having a mortgage is the biggest financial commitment they’ll make. It’s also probably the most expensive.
We felt it was high time that we quizzed our resident Mortgage specialist Peter Huckerby, who has over 10 years’ experience helping people with their finances, on his top tips to help you save on your mortgage.
If your fixed mortgage deal comes to an end, you’ll revert to your lender’s standard variable rate, known as SVR. This will usually see your payments increase as this rate tends to be much higher than the rate your fixed payments were based on.
Example: a typical fixed rate mortgage with a remaining balance of £180,000 could work out at around £213 cheaper compared to the average standard variable rate. That’s a potential saving of over £2,500 over a year.*
If you’re on the SVR make sure you shop around to see whether you can get a better, more competitive deal either by switching to a different provider or getting a better rate with your current provider.
Entering into a new fixed deal doesn’t mean you’ll lose all the money and hard work you’ve put into repaying your mortgage already, as long as you don’t increase the amount you borrow on your new mortgage deal.
Is your home insurance bundled in with your mortgage? These deals are often more expensive than paying your insurance separately so it’s worth checking.
It’s typically a minimum requirement of your mortgage to have buildings insurance, but that doesn’t mean you need to stick with your lender. Find out how much you’re paying and use a price comparison site to see if you can save.
Make sure you always check the fine print to make sure you’re getting a suitable level of cover and that it meets your lender’s minimum requirements.
When you compare a mortgage that charges interest daily to one that charges annually you’ll always find that the daily plan costs you less money over the term of your mortgage.
This is because every payment you make towards the balance of your mortgage is applied straight away.
When lenders calculate annual interest they use your mortgage balance at the start of the year, this ends up costing you more in the long-term.
Choosing to repay your mortgage over a longer period of time can reduce your monthly payments to be more affordable. If you’re struggling with repayments now, this can be one way to cut costs.
However, you should bear in mind that although increasing your term will reduce payments in the short term it’ll cost you more in interest over the long term.
If this is something you’re considering you must make sure you get mortgage advice to make sure it’s suitable for your situation.
If you’re on a DMP it’s unlikely you’ll be able to overpay your mortgage, but once you’re debt free you can consider overpayments as a way to reduce your mortgage burden.
Many people have seen their mortgage payments reduce in the last few years as a result of historically low interest rates.
If your payments fall, you could set that extra money aside and make extra payments towards your mortgage rather than letting them get swallowed up in your everyday spending.
On a repayment mortgage, part of your monthly payment is interest and part is capital (the money you actually borrowed). Any extra payments you make will help to reduce the capital you owe.
This means that the following month, the interest you’re charged is actually less, because your capital debt has reduced. This won’t make a huge difference overnight but over time it could save you thousands.
Some providers offer discounted plans or plans that start with a lower payment and go up gradually over a period of time.
Often you can find better deals if you live within a certain area, for example within 20 miles of a particular local building society. It makes sense to see if you qualify for these deals, as they could help you save money.
Keep a close eye on your everyday spending. Shop around for better deals on your utility bills, and try to cut out unnecessary costs such as old gym memberships, or online subscriptions.
This can help you free up extra cash you can use to help reduce the burden of a mortgage, or even free up enough money to use for overpayments.
Our regular newsletter brings you plenty of tips and advice on saving and making extra cash, and helping you manage while you’re in debt.
Whether you’re looking at re-mortgaging to get a better deal, or buying your first home, it’s vital that you seek expert, impartial mortgage advice from an organisation you trust.
Any decisions you make should be carefully considered, as they could have a big effect on you, your budget, and, if you’re on one, your debt solution.
Even if you have poor credit, there are some mortgage providers who may consider your situation, although a higher rate of interest will most likely apply.
A successful application would depend on the equity available in your home and how you’ve managed your debt over the past few years.
*Example calculated using a typical SVR of 4.25% and fixed rate of 2%. This doesn’t include fees and other costs and is for illustrative reasons only. Actual costs and rates may vary depending on many factors.