Two Ways To Save £2,000 On Your Mortgage!

100% mortgages and above have all but died and 95% mortgages are under attack. So maybe now's the time to use these two tips and save up to £4,000 over two years!

The credit crunch continues, but let's not over-react. I'm not convinced that the panic goes much beyond financial journalists, in any case. Good. If you read The Fool and follow our guidance on sound money management, your finances should weather it (unless you're very unfortunate). If you don't, you better get started.

I'll touch on the latest figures from the crunch and then I'll give you some tips.

You may already know that 125% mortgages (where you take out a loan and a mortgage worth 125% of your property value) are gone. The last such mortgages shrugged their shoulders and left a week or so ago. The trend continued this week with 100% mortgages now dead or dying. Mortgages for borrowers with only 5% deposits (95% mortgages) are being more noticeably affected, too. Now Nationwide has announced that it will charge more for those borrowing over 75% of the property value.

I'll elaborate on Nationwide, as I know that many of our readers are big fans of it, often with good cause. Their products are usually reasonably priced, and their terms and conditions are often the best and most clearly written.

Nationwide claims that it is still very competitive with 95% mortgages, despite its announcement. A quick search for 95%, two-year, fixed-rate, mortgages on our mortgage-comparison tool shows around 30 cheaper, comparable mortgages than Nationwide's, including fees and costs. In fact, if you enter the same details I did, you could save about £2,000 in two years on a £150,000 mortgage by going with the cheapest.

Editor's note: when using our comparison tool, remember to look at the true cost of the mortgage and click the arrow to 'sort descending'.

With 75% mortgages, Nationwide is again in roughly 30th place, but it's just £1,000 shy of the top. Even so, it's £1,000. If you're the sort to shop around to save a few pounds on a DVD, I think it's worth shopping around to save £500 a year on this!

Sharp readers will have noticed I said you'd save £2,000 'if you enter the same details I did'. Depending on your circumstances (because we're all very different), you'll make different savings, and other lenders might top the table. Nationwide is no exception to that.

So the guidance, crunch time or not, is always to look around for new deals. You're likely to save several thousand. You can always use your findings to attempt to re-negotiate with your current lender, which will save you money on switching. Boring tips, but true.

I have something new to say!

As usual with my articles, it's not just about ramming home the same old, boring, quality, sensible guidance. That's not my style. Here's something else that's interesting, which I discovered whilst playing with our comparison tables today.

If you request a mortgage just £1 over 95% of the total value of your property, you get less than 20 choices of mortgage. However, if you deduct that £1, you suddenly have 90 choices of mortgage. As a result, you see some much better deals and save yourself another £2,000!

A similar test around the 90% mark had good results, too. £1 over and you get 90 products to choose from. Just under 90% gives you 160 choices, and you can save perhaps £1,000.

So if you're close to 95% or 90%, but not quite there, you should see if you can save a little more or scrounge a little extra for a deposit, or attempt to negotiate with a broker or lender to let you have its cheaper rate.

(However, you may find the reverse is true: that a 96% mortgage is cheaper than a 95% one! Fool Jane Baker wrote about this in Buy Your First Home For Less. So get a range of quotes.)

Interestingly, the savings seem less significant when you look at £1 over 85% or 80%, but this could easily change as a result of the crunch. And the savings may be bigger for someone in your circumstances.

Going back to boring guidance again, because it's important: the bigger your deposit, the safer you'll be when you come to re-mortgage, especially if house prices take a tumble. Regular readers will hopefully see that, really, the way we behave with our money needn't, and shouldn't, change, regardless of crunches. Provided we behave correctly already!

> Compare mortgages with our search engine.
> Shop around for a better deal through The Fool's whole-of-market Mortgage Service.