One of the most significant financial commitments you’re ever going to make is buying a home. It is a commitment that can take 25 years + to complete. Saving for a deposit is one of the first steps many people take. But, there are many ways that you can make some serious savings on your mortgage.
Budget
We all know that to save you have spend less than you earn. For most people, they need to make some cutbacks in their daily living expenses to make savings. The best way to do that is to come up with a budget and stick to it.
- Meal planning
- Reducing takeaways
- Never buy things you don’t need
- Consider your subscription
Those are just the start of making a tight but workable budget that can get you closer to your deposit by the day. Even £1 saved can go towards your dream home.
Automatic saving
If you aren’t already taking advantage of the many automatic saving mobile phone apps, or with your bank directly you’re likely missing a trick. Even with a budget in place, you can make more savings than you first thought.
An automatic saving software takes a more in-depth look at your income and outgoings and makes a cleverly calculated savings amount known to you. Most often you can set this to entirely automatic. This means that whatever you can save will be moved from your regular bank account into a designated savings account. Here are some of the options for automatic savers:
- Plum
- Cleo
- Monzo
- Starling bank
- Tandem
All of these banks are FSCS protected, so if anything happens your money is protected up to £85,000. But read the small print just to be sure.
They never touch the money that is designated for bills, or your other regular expenses – instead, they take what would be ‘change’.
Mortgage Calculator
This is one of the absolute keys to saving on your mortgage both in the short and long term. Calculate mortgage repayments carefully, and use all of the data that you generate to create a spreadsheet of the best options for you. Don’t be afraid to shop around, and even ask the lender if there are better offers available.
Insurance
There will be many bundles that can come with a mortgage. One of them is often an insurance package. This insurance bundle is rarely the cheapest way for you to have a mortgage and insurance.
Use an insurance comparison website to make sure that what your lender has offered you is actually the best financial option.
It would be best if you also checked the fine print on the contracts, or in the offers. Your level of cover in an insurance and mortgage bundle isn’t always the best. If you do decide that you want to opt for a different insurance package, make sure that it meets the minimum requirements on your mortgage agreement.
Term
If you need to reduce the amount you pay each month, then aim to lengthen your mortgage repayment term. This is only a save in the short term because you will be paying more in the long term.
This is something that should only really be considered if you run into issues paying your mortgage, which can happen.
Government
There are many government help schemes that encourage homeowners to opt for them. A list of possible schemes is updated and added to Gov.uk. A short overview is that you can have a Lifetime ISA account to help you save for your first home, a shared ownership scheme is possible, and the Help to Buy Equity scheme.
There are some stipulations you’ll need to meet in order to be accepted for the Help to Buy scheme:
The home must be:
- A new build
- A purchase price up to 600,000 in England, but only 300,000 in Wales
- It will be the only home you own
- You cannot sublet or rent it out after you buy it.
How it works:
- You’ll need a 5% deposit.
- The government will offer you up to 20%; this is 40% in London.
- Your mortgage should be 75% of the rest or 55% in London.
You’ll need a Help to Buy agent for this.
Early Repayment
This is approached with some trepidation for many people. There can be occasions where paying your mortgage off early has a sting in the tail. When your mortgage is 25 years or more, even on a friendly interest rate, you will be paying tens of thousands on interest alone.
There are four ways that you can pay your mortgage off quicker:
Remortgage – If you don’t make a switch to a cheaper deal through the life of your mortgage, you will end up on your lenders SVR. This is usually 3.7%. The average fixed rate is 1.42%. When your deal ends, you will be charged more. Just remember that a remortgage comes with charges and fees. You’ll need to know the numbers to make this work.
Pay fees upfront – There is usually a catch to a friendly-looking interest rate. Most people add the fees to the mortgage, but it is better to pay them off up front where possible. Paying the fees off in a lump-sum at the start of the mortgage will reduce your monthly payments, and make it cheaper overall.
Overpay on your mortgage – overpaying your mortgage by even 100 a month can make a huge impact on how much you will need to pay back. However, not all mortgage lenders will let you pay anything above the agreed repayment amount. In fact, some will charge you for it. However, check the small print and you might just find you have the option to overpay by 10%. You have to be sure that you speak to your lender and tell them you’d like to reduce the debt, not chance your monthly payments – or nothing will change.
Shorten your mortgage term – It is possible to take out a mortgage with a fixed rate, and then after a number of years find a mortgage with a shorter term. You can save a few thousand in the thousands, but keep in mind your mortgage repayments would be higher each month.
Should I overpay my mortgage?
This is a question most people will have. It is important to know that overpaying on your mortgage doesn’t work for everyone. If it does work out for you, then you will really see the benefits. If you pay too much with some lenders, you will actually get charged between 1 and 5%. This number will depend on the amount your mortgage is.
Ideally, lenders want you to stick with them once the rate ends and because they have budgets. These budget take into account how much you will be paying, and they like it to stay that way.
Flexible Mortgage
Mortgages with flexible features should be one of the most coveted on the market. They have offset features, borrow-back facilities, and more. You can overpay with these mortgages, and if you need to withdraw cash, you can do this without a penalty. If you have this type of mortgage, you can save a bundle because you can pay in all your spare cash – if you want to.
The issue is that the interest is typically much higher, and not everyone wants to make that sacrifice.
Big Deposit
One of the best ways to take a huge swing at the amount that you will need to pay back is by putting down as much as you can in the first instant. Most people try to aim for the minimum amount of deposit. A higher deposit is considered anything that is 25% and above. Saving this type of deposit takes dedication, but it can get you the most competitive rates possible.
The bigger your deposit, the less of a risk you appear to be, and the less amount of a mortgage you are going to need for it.
A bigger deposit will also most often result in you having lower repayment, and increase your likelihood of getting a mortgage in the first place.
You will still need to go through credit checks, and affordability criteria, but the size of the deposit can go in your favour. You will still need to show that you can pay the monthly mortgage payments.
When it comes to finances, you don’t always need to work harder; you can work smarter like using your spare time to make extra income from blogging, surveys, and other side projects. Make sure that you shop around as much as possible and that you always compare as many different options as possible.
This will mean you can find the lowest rate for you, or the best option when it comes to your circ*mstances.
And the critical point is that when it comes to financing, you must always speak to a qualified financial advisor so that you can get all of your options and information.
