Tips for Managing Your Mortgage
Managing your mortgage includes paying fees upfront, making extra payments if you can, and always minding your rate.
A mortgage is the biggest loan most of us will ever take on, and the thought of paying it off can seem daunting. But these tips can help you keep on top of managing your mortgage, and even pay it off early.
Pay the mortgage fee upfront
Most mortgages come with a mortgage fee, also known as a product or arrangement fee. This is often around £1,000 and is a fee charged for you to effectively reserve that product.
Many lenders will allow you to add this to your mortgage balance, which can be attractive as buying a home is an expensive time and you could instead devote your spare cash to refurbishing the property.
However, this will be an expensive move as you will be charged interest on the loan just as you are charged interest on the sum being borrowed to finance the purchase. As a result it will cost you far less overall if you pay the fee upfront.
Make overpayments if you can afford it
Most mortgages allow borrowers to pay more than the monthly mortgage repayment, typically by up to 10% of the outstanding mortgage balance, without charging you for doing so.
This is a great idea if you can afford it, as it means you pay the mortgage off early, saving a lot in interest charges in the process.
What happens when my fixed-rate mortgage ends?
Mortgages generally come with an initial fixed, discounted or tracker period of two to five years. After that period ends, you move onto your lender’s standard variable rate.
The SVR is set by the lender, can be changed at any time and is often significantly higher than the fixed or tracker rates on the market. For example, in August 2020 the average SVR stood at 4.44%, compared to an average rate of 2.54% for two-year fixed rate deals which come with a product fee.
As a result, moving onto the SVR means your monthly repayments will likely increase noticeably. That’s why this is generally the time for borrowers to remortgage to a new, cheaper fixed, discounted or tracker rate.
Should I remortgage?
Remortgaging may be a good idea if you are about to, or have already, moved onto your lender’s SVR. Not only will you reduce the size of your monthly repayments, you will also benefit from some additional certainty over how much your repayments will be month to month
With a fixed rate you know that your rate will be set in stone for a specific period, while with a tracker rate you know that your rate will change only when the bank base rate, set by the Bank of England, does.
You can remortgage even if you are within your initial fixed, discounted or tracker period, though this is less advisable. Remortgaging at this time is very likely to incur an early repayment charge, which is calculated as a percentage of the outstanding mortgage and so can run into the thousands of pounds.
There are other reasons you may wish to remortgage. You may want to increase the size of your home loan in order to release some funds which you can spend on home improvements such as an extension or new kitchen.
» MORE: All about remortgaging
Can I rent out my house if I have a mortgage?
Generally, if you want to rent out the entirety of the property, you need to have a buy-to-let mortgage. This type of home loan is designed for landlords. If you have a residential mortgage on the property, you will need to switch to a buy-to-let mortgage or gain ‘consent to let' from your existing lender. This will likely increase the size of your repayments, but will mean that taking in a tenant is no longer in breach of your mortgage contract’s conditions.
You may be able to rent out a spare room in your home to a lodger while you still live there, without needing to change your mortgage. You can even enjoy tax-free rental income when you do so, thanks to the government’s 'rent a room' scheme. However, you should discuss this with your mortgage lender first.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more