How to save money on a mortgage

There are several ways to save money when buying your home, especially now that the housing market is cooling.  Too many people follow the traditional route, costing them tens of thousands of pounds.  Instead, it is important to step back and learn a bit about house buying, before you place your first offer.

The first step is to save as much as possible for a down payment.  Sometimes this may include borrowing from parents.  A higher down payment puts the homebuyer in a better position with banks. less.  Interest rates are linked to the risk.  Less risky mortgages have lower interest rates.

A good credit rating can also lower interest rates.  The most important thing is to pay all bills on time, and improve your credit rating, as much as possible before approaching a bank.  A simple plan that includes tightening the budget and paying the minimum payment on all bills for a year can make a substantial difference in the final mortgage costs.

Another important step is to become pre approved for a mortgage instead of just pre qualified.  This puts you in a more powerful bargaining position with sellers.  Many home sellers are more willing to take a little less if there is no ‘upon approval’ clause and the sale is guaranteed.

Another twist is to ask the bank if they will guarantee the money in a form that will allow you to attend house auctions.  There are many deals at house auctions.

Another way to reduce the risk, and lower interest payments, is to keep the money needed less than 28% your current monthly income.  Mortgages that are less than 28% of the borrower’s monthly income, pre bonus, will have lower fees and lower interest rates than a borrowing higher amounts.

That said, it is also important to avoid making large purchases.  Drive the old car for another year. Tighten the budget, reduce expenses, and try to save a minimum of three month’s expenses, including the mortgage.  Many lenders will look at these factors when deciding how much a mortgage should cost, and the risk factors involved.

Weekly and bi-weekly payments save thousands of interest pounds and shave years off a 25-year mortgage. Use a mortgage calculator and play with the figures until you find the term and repayment options that fit your budget.  Walking into a bank with your own figures gives you negotiating power when arranging a loan.

Too many borrowers settle for what the bank tells them they are allowed to have.  This is rarely the most affordable option, and rarely is it in the best interest of the borrower.

Cancel the private mortgage insurance.  There are a dozen more affordable ways to insure a mortgage.  Many potential homebuyers are fatigued after the long process of arranging a mortgage. They often settle for the insurance the lender offers.  Some people still believe that they must accept the policy offered to them by their lender.

Many people fail to save money when they remortgage.  Their equity has increased substantially.  Many homes are worth ₤100,000 more than they were two or three years ago.  This equity increase reduces the risk, and it should substantially reduce the mortgage repayment. If you already have a PMI policy then use your home’s appreciated value to petition the lender to cancel PMI.

Make extra mortgage payments regularly.  Even small payments can have a dramatic effect on the overall total of the mortgage.

Another way to save money is to ask the mortgage lender to give you the total cost of the mortgage including fees.  There are many ways a mortgage lender can make the figures look good over the monthly and yearly term.  However, when you take a look at the final cost of the mortgage, the total that is actually repaid can be quite sobering.

Buying house wise is smart move.  Buying ‘more house than you need’ is a dangerous move. It can leave the homeowner paying more mortgage, council taxes, utility bills, and renovation costs that will far outweigh any expected gains.  However, if this is your plan, live in the house for two years to avoid capital gains and then rent it out. 

Another way to get a more affordable mortgage, and a bigger home, is to add the income generated from renting out a room.  Many lending companies are now permitting homeowners to use the income generated from letting out a room as part of their total income.  This will lower the monthly payments lower than the 28%, reducing the risk, and reducing the cost of borrowing.

The important thing is to make sure that you don’t let lenders check your credit rating until you decide on which financial product you want.  Each time your credit report is accessed, your credit rating goes down.  The lower your credit rating, the more interest you will pay. Instead, acquire a copy of your credit report and take it into the bank when you apply for a loan.