With an ever-increasing squeeze on household budgets taking hold and the prospect of an interest rate rise looming, taking care of the essential bills becomes ever more important. Probably the most important of these is your mortgage, the bill that keeps a roof over your head. Making sure that this is paid on time is imperative. With the mortgage generally being the major spend for most home-owning households, reducing mortgage payments becomes an increasing focus.
Re-assess your Loan Length
Put simply, if you are struggling to keep up with mortgage payments, you might consider looking to lengthen the term. Say, from a 15 or 20 year mortgage term to 25 or even 30 years. It might sound a long time, but given the significant reduction in your monthly repayment, you could find yourself in a much better financial position from month to month. You may find that you aren’t benefitting from the most competitive interest rates by taking a longer-term mortgage, but you’ll free up some cash each month.
Ask for a Deal with a Daily Interest Calculation
A lot of deals are still based on the interest being calculated yearly or monthly, therefore you could end up paying interest on repayments that you have already made. Typically, anyone with a mortgage from a number of lenders, including Halifax, Lloyds TSB or Cheltenham & Gloucester (C&G) can make the switch to daily interest for free simply by calling the lender and arranging it. Other lenders may require you to change product completely to do this. You’ll also keep the same rate that you are on, but because lenders’ sums are done once a year, they do not factor in all payments, so interest is calculated on the balance at the start of the year which will be higher than later in the year.
Change to an Interest-Only Deal
We would generally only consider this as a very last resort as you would not be clearing any part of the capital and your debt would remain static. As such most lenders would require evidence that you do not have the financial means to remain on a repayment mortgage or the ability to repay any of the balance on a monthly basis. This is quite an extreme option but can result in quite a significant reduction and can work for very short periods of time.
Re-mortgage to Lower Your Costs
Whilst you could look to extend a mortgage term length to decrease monthly costs, the process of re-mortgaging can be the tool to help reduce monthly costs and provide yourself with future stability. The Grange Mortgages appraisal process is in-depth and covers a huge range of aspects of your circumstances, including financial conduct on loans, credit card usage, late payments on utilities, and the size of deposit that you can amass. The aim here is to lower the perceived risk of the lender so that they feel comfortable with giving you an amount that is affordable, but in doing so they reward you by offering lower interest rates compared to higher risk borrowers. It is certainly worthwhile obtaining a copy of your credit report – along with anyone else who will be part of the mortgage – and assess whether you have a high enough score and are thereby considered ‘safe’ by lenders.