Guide to Reducing Burden of a Mortgage in UK
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With UK interest rates rising to 5.25%, UK home owners are experiencing a
significant rise in their monthly repayments. As interest rates rise it
increases the incentive for homeowners to shop around and investigate whether
they can get a better deal. There are various steps home owners can take to try
and reduce the burden of monthly mortgage payments in both the short term and
long term.
1. Investigate the possibilities of remortgaging your house. Remortgaging is
the best way to save significant sums over the long term. Many mortgage lenders
take advantage of “borrower inertia”. This mean many borrowers are unwilling to
switch from the lenders SVR (Standard Variable Rate) The good news is that if
you look around you will be able to benefit from their more attractive deals. It
is necessary to take into account fees and costs of moving a mortgage but it in
the long term it is worth investigating, as the potential savings are
significant. For example if you were on a SVR of 7% and had a mortgage of
£150,000 an interest only mortgage would be £875 per month. If you were able to
find a fixed rate mortgage deal of say 4.5% mortgage payments would fall to £562
interest only mortgages.
2. Fees for Remortgaging have tended to rise in the past year. This includes
both arrangement fees and exit fees. So it is important to read the small print
and make sure you get good advice. If a deal seems too good to be true, there is
likely to be a catch. Make sure you are not rushed into a deal by a pushy
salesman.
3. If you have a volatile income consider the benefits of a flexible
mortgage. If you have an inflow of money you can use it to pay off the capital
of your mortgage and help to reduce interest payments, however if you go through
a difficult financial period you can reduce your monthly payments. However if
your income is very stable the benefits of such a mortgage will not be felt.
4. For many homeowners one of the most worrying aspects of a mortgage is how
changes in interest rates can seriously affect your monthly mortgage budget.
This makes it difficult for homeowners to plan ahead with any confidence. If you
feel that you are in this category you should look into a fixed rate mortgage
over a period of 4 to 5 years. With interest rates rising at the moment fixed
rate mortgages are going quite quickly. It is definitely worth shopping around
for a mortgage with combines a good rate of interest with low fee.
5. If you have a current financial hardship;( perhaps there are school fees
to pay,) it is worth considering Remortgaging to get a longer-term mortgage. In
the past 25-year mortgages were considered the norm, but with house prices
rising well above the rate of inflation it is making interest payments more
difficult. To make mortgages affordable for first time buyers, lenders have been
willing to offer longer mortgage terms for 40 or even 50 years. There is no
reason why Remortgaging to a longer-term plan cannot be a good idea, especially
if your financial situation is likely to improve in 10 years time.
About the Author
Richard Pettinger studied Politics and Economics at Lady Margaret Hall,
Oxford University. He now works as an economics teacher in Oxford. He enjoys
writing essays on Economic and he edits an Economics Blog focused on UK and US
economies:
http://www.economicshelp.org/econ.html
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2007-04-07 15:34:51 in Business Articles
