Five great ways to slash your mortgage costs!

It's not difficult to slash the amount you spend on your mortgage.

There are plenty of ways to cut how much you shell out on the mortgage, whether short-term or over the entire life of the mortgage.

#1 Make the most of overpayments

Ok, this sounds a bit counterintuitive, but bear with me. If you want to play the long game and cut how much your mortgage costs you overall, rather than on a monthly basis, then you’ll definitely want to take advantage of overpayments.

The vast majority of mortgages allow borrowers to make overpayments of up to 10% without charging them. And making use of such a facility can save you a small fortune. On a 25 year £150,000 mortgage at 5%, overpaying by 10% (so £964 a month rather than £876) will shave four years off your mortgage term, and almost £21,000 in interest!

What’s more, some mortgages allow you to use your previous overpayments to reduce your mortgage payments in future, perhaps if you lose your job or have a child.

It’s a good idea to discuss how much you can overpay with a mortgage broker before you go ahead, to ensure you fully understand how your lender’s facility works and how much time and money you can save with your particular mortgage.

#2 Use your savings

No, I don’t mean wave goodbye to your savings by ploughing them into your mortgage. But you can use your savings a bit more cleverly to reduce your mortgage balance by taking advantage of an offset mortgage.

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An offset mortgage works by linking your mortgage to your savings account. You’ll then only pay interest on the difference. So let’s say you’ve got a 25 year £150,000 mortgage at 5%, in which case your current repayments will be £876. However, if you have £20,000 in savings, by linking them using an offset mortgage, you’d only be paying interest on £130,000 – in other words your repayments plummet to £760 a month!

Alternatively you can keep your repayments the same, and simply pay the mortgage off years early!

#3 Go for a cheap tracker

If you really want to see your monthly mortgage bill plummet, then an obvious option is to go for a decent base rate tracker mortgage. Bank base rate has languished at a record low of 0.5% for an incredible 19 months now, and is expected to stay there for some time to come. While it would have been better for you financially if you had taken out a decent tracker before base rate plummeted so far, there are still some seriously cheap deals available.

What’s more, if you take out a decent tracker, you can also make use of overpayments to build up your equity – it may end up that you still pay less each month than you are currently, but slash how long it will take you to pay off the mortgage in total!

However, before you rush off to apply, remember that base rate will have to rise at some point, and if it does so quicker than expected you may end up trapped in an expensive mortgage which you will have to pay thousands to get out of!

#4 Fix for the long term

The counter argument to a cheap tracker is going for a long-term fixed rate mortgage. Trackers may seen brilliantly cheap at the moment, but the simple fact is that they will get more expensive. However, historically speaking fixed rates are at seriously low levels, and are only likely to get more expensive in the coming years as base rate rises.

So there is a pretty strong argument for taking advantage by signing up to a long-term fixed rate of at least five years. As well as securing a decent low rate, you’ll also miss out on having to shell out for the various product fees that you would face, and with the average product fee a cool £1,000, that could be a serious saving.

Again, before you apply for any fixed rate deals, be sure to discuss your position with an independent adviser, who will be able to advise you on which lender you most fit the criteria for, as well as potentially having access to mortgages that are not available direct.

#5 Ditch the product fee

Many of the best looking mortgage products in the market at the moment carry astronomical product fees. For example, you can get a great tracker from Cheltenham & Gloucester at a current rate of 1.99% interest, however the product fee is 2.5% of the mortgage advance! On a £150,000 mortgage, that’s a fee of £3,750 you need to stump up.

Many of us (and sadly I’ve done this myself) just add the product fee to the mortgage, so that we don’t have to worry about paying it up front. However, by doing this, you only end up paying interest on it over the length of your mortgage, so you end up spending far more.

There are now loads of competitive fee-free mortgages, or even deals with very small fees (both HSBC and First Direct have whole ranges of deals with £99 product fees).

With all of these tips, a mortgage broker is best placed to guide you on which deals are best for you and your circumstances. To take advantage of our fee-free team, head over to our mortgage centre where you can pick their brains over the phone, via email, or instant messenger.

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.