How to pay lower mortgage instalments: 6 tips

When you take out a mortgage, you are choosing to make a very serious commitment. You may be paying it for the next 25 years and there is a good chance it will affect many other purchases in your life. You may find that you will have to deny yourself many pleasures, especially if you are committed to repaying your home early. In today’s article, we’ll look at how to pay less in mortgage instalments and, in turn, get more enjoyment for whatever you want.

We’ve split our article into two parts - in the first we’ll look at people who already have a mortgage, while in the second we’ll give tips for people who are just planning to buy their home.

I already have a property in the UK - how to pay lower mortgage instalments?

Let’s first get those who already have a mortgage and would like to pay lower instalments on it:

Changing banks (remortgage)

Banks’ offers change all the time and depend on many factors. The interest rate on a mortgage is derived both from the market situation (base rates, current demand for mortgages) and from your capabilities (credit score, amount of deposit, earnings).

Even if you chose the best possible deal 5 years ago, your mortgage may be mediocre today. For this reason, you should regularly check the products available and be aware of the possibility of switching to a better product. Remortgaging can involve arrangement, valuation and legal fees, and an early repayment charge if you leave your current deal early. It may get you a lower rate, depending on your circumstances and the deals available, so compare the total cost, not just the rate.

We can guide you through the process at Extend Finance. Timescales depend on the lender, your application, valuation and any legal work. Any saving depends on your outstanding balance, the rates available to you and the fees involved.

Overpaying your mortgage

If for some reason you can’t do a remortgage or it’s not cost-effective, it’s worth thinking about overpaying your mortgage. How does this work?

Your mortgage instalments depend on both the amount of capital borrowed and the interest. With repayments spread over 25 or 30 years, a large part of the total commitment is interest. How large? Let’s use a simple calculation for this:

James has bought a property worth £200,000 and has already paid off half of his mortgage - he has £100,000 left - and he has 15 years to go before he pays the final instalment. He recently got a small pay rise and an extra £5,000 has appeared in his savings account - how can he use it?

Because James pays £5,000 up front, the interest he saves over the remaining term is about £2,940 (if the rate stays the same).

Illustrative interest rate: 6.7% (an example rate, not a current lender offer). Calculator: MoneyHelper.

Overpaying can reduce your payments or the total interest you pay. Depending on your lender and what you ask for, an overpayment can lower your monthly instalment (here by about £44) or keep the instalment the same and shorten your mortgage term. Of course, the amount of the instalment could change if the Bank of England introduces an interest rate rise or cut. However, if James’s mortgage is at a fixed rate and he opts for the lower instalment, his monthly outgoings will fall by more than £500 a year (until the repayment terms change).

It is important to remember that many lenders let you overpay up to 10% of the outstanding balance each year without an early repayment charge while your deal has one, but the allowance varies, so check your own mortgage terms. In this case, this is £10,000 - if the overpayment exceeded this figure, James may have to pay an Early Repayment Charge, which would reduce his benefits.

Changing your insurance

Your insurance premium is not part of your mortgage instalment, but it is an extra cost to budget for. Many lenders require buildings insurance as a condition of the mortgage, while other cover such as contents insurance is your choice. Premiums vary, so it can be worth comparing them.

If you want to see if you can save money on your insurance, be sure to get in touch with us. We’ll do a review of your insurance together.

I want to buy a property in the UK - what can I do to keep my mortgage instalments low?

Let’s now consider what to do to make your future loan as beneficial to you as possible.

Find a good mortgage broker

When taking out a mortgage, you can either use a broker (adviser) or go directly to the bank. The main difference between the two solutions is the choice of offers. By coming to the bank, you have access to products offered by one particular company. There may be several, but the choice will be quite limited. By choosing to work with a broker, such as Extend Finance, you gain access to hundreds of different mortgages offered by a huge pool of banks - both local and international.

Our mortgage advice fee depends on the type and complexity of your case. We will explain the fee before you decide to proceed with our service. We can help you compare suitable options from lenders available to us, taking account of your circumstances, costs and lending criteria. Available options and approval depend on individual assessment.

Choose your mortgage term carefully

The repayment period you choose affects both your monthly instalments and the total amount you pay back. A longer term lowers the monthly payment but usually means paying more interest overall.

A shorter term does the opposite: your monthly payments will be higher, but you will pay less interest in total and clear your mortgage sooner.

It’s worth talking to your broker about the term - together we’ll find the golden mean between low mortgage instalments and a low total cost of financing your home.

Compare conveyancing quotes

Legal costs (conveyancing) vary with the property, the transaction and the firm, so it is worth comparing several itemised quotes, including disbursements, and weighing the price against the firm’s service.

Unless conveyancing has a direct bearing on your mortgage instalments, you can get help from a mortgage adviser on this too. Extend Finance has already helped many clients to choose good law firms. You can view the conveyancing quote tools on our Find a solicitor page. Availability, scope and final fees must be confirmed with the legal provider.

Summary

Several options can lower your mortgage payments or the overall cost of your mortgage: remortgaging, overpaying, reviewing your insurance, choosing your term carefully and comparing legal costs. Which one suits you depends on your current deal, any early repayment charges and your budget.

If you’re interested, get in touch and we’ll do everything we can to make sure you’re as satisfied as possible.