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SAVING MONEY ON A MORTGAGE

A mortgage is a loan usually on property such as your home to help purchase it or to raise funds for other purposes.

Your ability to obtain a mortgage is determined by the value of the property being offered as security and your ability to make the payments of interest on the loan and repay the balance due.

The LONGER the term of the mortgage the cheaper will be monthly payments as the amount being repaid from the capital is small. BUT the overall cost is higher because you are borrowing money over a long period. 10-40 years are typical mortgage terms.

Due to high property costs many people have been forced to take INTEREST ONLY mortgages whereby they make no capital payments, and thus borrow the full sum ongoing for a period of years. At the end of the term they can either remortgage or pay off the loan using other sources, typically an insurance policy, sale of other assets such as property or a business, or a pension fund.

In times when PROPERTY VALUES are increasing more than the INTEREST RATE, an interest only deal is good value, since you are making a PROFIT from owning your house.

When property values are DECREASING or UNSTABLE you need to add the LOSS of value to the INTEREST to show the TRUE COST of owning your home, which may make moving or renting a better deal.

Banks and Building Societies who lend the bulk of mortgage funds will value the property and normally limit the percentage of its value they will lend. It is wise to limit borrowing to 50-75% of its value to ensure you have "free equity".

High property prices often force new mortgage borrowers to borrow larger percentages of the property value, only made possible by incomes, often of 2 or more people. Some lender using personal loans will lend OVER 100% of the property value.

Property values for mortgage purposes is usually lower than what you may be paying as lenders need to be PESSIMISTIC with values rather than take the riskier OVER OPTIMISTIC view.

Some large companies especially those in the financial sector often make available low interest mortgage loans to certain sectors of employees. This is a useful benefit but you need to ensure you consider the rules should you leave the employment of the company, should you qualify for such a benefit.

Saving money on a mortgage can be achieved in a number of key areas;

• pay as much per month as you can comfortably afford. Consider the effects of a joint mortgage loosing one income, and children being added to the family unit.
• leave as much "free equity" as you can in the property.
• look at the saleability of your property in the future, this may reflect on the speed and value should you sell in a few years.
• check the market place for best rates, use a mortgage broker who has wider access to the market BUT may charge a fee.
• take the mortgage over as shorter term as possible to save interest on long term borrowing where rates may increase in later years.
• when interest rates are low borrow at fixed rates for as long as possible 2-5 years typically.
• consider a remortgage on fixed rate low interest rates when your own low rate ends. Many deals can provide free legal fees and legal costs.
• before remortgaging elsewhere check with your own CURRENT lender for remortgage options they may be keen to keep you if you have a good payment history and ample equity in your property.

Please feel free to Contact Us with questions or to give us information to add to our knowledge base.