Avoid Mortgage Arrears
There are ways to cut down your monthly mortgage repayments, although some may cost you more in the long term. Consider the options and make the choice that will suit you.
With household bills rising, especially for food, energy and car fuel, the burden of the mortgage seems to weigh more heavily than ever, particularly if you’re coming up to remortgage, when you might find your new repayments will soar.
It is important to avoid getting into mortgage arrears which would harm your credit rating, but how can you avoid those problems?
Switch your mortgage deal to make sure that you do not end up on your lender’s standard variable rate (SVR). An SVR could be around 7.94%. The repayments on a £180,000 mortgage would be £1,398 per month, but if you switched to an interest rate of a best-buy 5.99%, your repayments would be £226 less each month. Start shopping around for a new rate around three months before your existing deal runs out. If you leave it too late, and run into arrears, the here’s worse news, because best-buy deals are only available to those with excellent credit histories.
Another way to reduce your monthly repayments is to switch from a repayment to an interest-only mortgage. The saving on a £180,000 mortgage would be around £275 per month. This is a reasonable short-term strategy, but the outstanding debt will have to be paid at some time in the future, so don’t let the problem grow too large. Most lenders will allow this kind of switch without penalty.
Extending your mortgage term will reduce the monthly repayments, but of course there will be more of them as your mortgage goes on longer, and overall you will end up paying more. For a £180,000 mortgage an extension of five years would reduce your monthly repayments by £85 a month.
Banks and building societies offer insurance to borrowers – mortgage payment protection insurance – which supposedly helps people if they fall ill or become unemployed. However, the insurance is not without controversy, and payments usually expire within two years. Check the small print before committing to more outgoings.
