Are you ready to kick start the new year with a bang?
To help you do just that, I have put together a month long financial boot camp, with two tips per week and a call to action. Together, we will review several aspects of your financial life to make sure you start the year in good shape.
We have already looked at your utility bills and I put together a detailed guide about how to lower them, as well as your monthly debt payments. Today, let’s see how you can reduce one of your biggest expense: your mortgage.
Are you paying too much?
My mortgage rate is 2.29%. Unless yours is 2.99% or less, you probably are. High Low To Value (LTV) mortgages can be a bit more expensive, if you borrowed 90% of the price of your property, it is normal that you get a higher rate. But if it has been a few years, you have probably dropped under 80% LTV and deserve a better rate. Let’s see if we can get you one.
Checking your mortgage rates and conditions
Dig out your latest statement, and if possible, the terms and conditions of the mortgage. You should see
– The rate (APR) you are borrowing at
– The Loan to value of the mortgage
– The fees you paid to get that mortgage
– How many years you have left on the mortgage
– The principle you still owe
– The early repayment penalties, if any.
My favorite mortgage at the moment is the lifetime tracker. It follows the Bank of England’s base rate which is at an all time low (currently 0.5%, unchanged since Q2 2009). My mortgage is at 1.79% plus base, meaning a super low rate of 2.29%. If you do not like surprises and want to fix your rate, you will get a higher rate, but I can afford for the rate to go up several points so I’d rather take the risk at the moment.
Let’s stay on topic and see if with all that information we can get you a better rate.
Checking your credit score
Before you start negotiating your mortgage or applying for a new one, it is important to know how much power you have in the negotiation. If you have an impeccable track record, your credit score must be good or excellent, and you have a strong position to ask for a rate discount, as it is easy for you to leave and take your business elsewhere.
If you have bad credit, it is a bit more complicated, but it can be done.
So check your credit score to know where you stand. Most agencies will provide a free credit score, just remember to unsubscribe before the 30 day trial ends or your card will be charged with a year membership.
Refinancing your mortgage
When I refinanced a couple of years ago, I did so via my lender’s online banking. It was super convenient, I just had to log in, click on my mortgage, I was presented with several refinance options, and chose the one that fitted me best. I was self employed at the time and knew it would be really complicated to apply for a new mortgage with another bank. Thankfully, this new application was accepted by the bank with “digital signature”, I did not even have to fill paperwork and send it in the mail.
Your current bank is probably your best first option. Make an appointment, tell them you were given a rate for 90% LTV mortgage but now you are at 70% LTV (either because you have been paying it off for years or because you have a lump sum to get there) and you want to know your options.
Then, with your bank’s proposal, go shop elsewhere. A little competition never hurts.
Look out for the fees
Once or so a year, my bank holds a “mortgage sales”. They offer fee free mortgages and lower rates. That is the perfect time to refinance. Otherwise, the fees can go from nothing to £1,999+ and can annihilate your savings.
Use an easy mortgage calculator to figure out if the switch is worthwhile or not.
How much will you save?
Lowering your mortgage rate even by half a point usually results in £1,000s of savings. Again, there are dozens of mortgage calculators out there to help you determinate the exact figure.
If you are on the market for a new mortgage, you should check Quidco on top of that, to see if you are eligible for some cash back.
There are several banks offering cash back to get new customers.
Action for the week
1. List down all your mortgage specifics from your last bank statement and determine the LTV of your mortgage. Even if you have only been paying it off for a couple of years, property prices may have risen and your LTV thus lowered.
2. Compare the rates. Go online and look for cheaper mortgages. Then, go to Quidco and check for additional cash back. Check with your high street bank, they are not always the most competitive but sometimes have good deals to keep existing customers. And they know you. Sort of. They may overlook a poor credit score when a new lender won’t.
3. Apply for the lowest rate mortgage. If you have good credit, that is one of the easiest way to lower your monthly mortgage payment. You can also choose to keep your repayments the same, and crush down your debt even faster. Once more, a calculator will tell you better than I will how many years you can shave off your mortgage by paying an extra £50 every month.
4. Get ready to provide proof of income and expenses. Unless you stay with the same bank, the new lender will ask for your P60, last payslips, what your bills are… it can get tedious but the rewards are big.
5. Drop me a line and let me know how much you saved 🙂
Unlike negotiating your bills or your consumer loans, this one will take a bit more time to process. However, you can save a LOT of money just by lowering your mortgage by 0.5%. So gather your strength and go for it! Last time I refinanced my mortgage it took me 15 minutes online and I am saving £120 a year, it has been almost 3 years. Not too shabby for 15 minutes of my time what do you think? Good luck!
Find more tips on Money Bulldog where Adam lists 5 ways to make 2014 the best financial year yet!