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Stop paying too much for your mortgage
by Sarah Modlock
Ever feel like you are paying too much for your mortgage? You probably are. Almost a third of UK borrowers pay around 2% more than they need to for their mortgage according to independent brokers Charcol. The additional financial burden is made worse by increasing debt which is fast becoming a modern plague.
When former BBC Correspondent Rosie Millard revealed that she was in a classic middle-class debt trap with everything she earned and owed tied up in property, many people smugly thought it served her right for trying to capitalise on the booming property market. But thousands of people in similar positions felt relieved they were not alone. But a chance to save money may be right under your nose.
'Over the last four or five years we have witnessed countless stories on how the UK population is getting further and further into debt,' agrees Charcol's Elliot Nathan. 'With the fairly surprising confession of Rosie Millard that she is barely surviving, using all income to meet interest payments on her debt, this awareness has been increased. Yet what is really surprising, is that many families can do something about their situation, using their largest financial commitment to help them out of unsecured debt trouble,' Nathan explains.
Charcol says that there are still at least 30% of UK mortgage borrowers who pay a lender's standard variable rate (SVR) which is often as much as 2% more than some of the better deals in the market. 'Many of those in the financial mire are likely to have large mortgages, so the difference between paying a good rate and paying a poor one is often hundreds of pounds a month,' adds Nathan.
Numbers game
For example, a borrower who has a £200,000 mortgage and pays a lender's SVR, typically 6.8%, will currently pay £1,133 a month in interest payments. If that same loan is remortgaged to a market-leading deal with a rate of 4.85%, the monthly interest payments shrink to £808. That is a saving of £325 a month, or £3,900 a year*.
Alternatively, and this is something that may appeal to many who are trapped with lots of unsecured debt, a borrower could remortgage to consolidate this debt onto the mortgage, thereby drastically reducing their monthly outgoings. Using the same example, if a borrower has a £200,000 mortgage on an SVR and £40,000 worth of unsecured debt, they could remortgage, consolidate the £40,000 and pay £970 a month in interest. This is still over £150 a month less than they were paying. Of course, a borrower is likely to pay more in interest in the long-term, but as a way to manage cash-flow if you have got large amounts of debt to service, it is a really viable option.
Vote with your feet
You may keep telling yourself that reviewing your mortgage is something you must get round to doing. But you would be amazed how time flies. As a General Election looms, Charcol, reveals that almost seven million homeowners have not remortgaged since the Tories were last in power. As a result, consumers are collectively losing out on savings of over £5 billion this year alone.
Whilst historically, borrowers have remortgaged most under Labour, remortgage activity peaked during the Tory-led period between1989 and 1993, in light of the eye-watering climb in interest rates to 15% in 1990. The good news is that more than three million savvy homeowners have remortgaged since the last general election, taking advantage of the fierce competition in the marketplace to secure themselves substantial savings.
But millions of homeowners are missing out on potentially massive repayment savings by sitting on their hands instead of taking advantage of today's low rates. A typical borrower on standard variable rate can save around £768 per year by remortgaging, and you can quickly check online or over the phone whether this applies to you.
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