For most of us, our housing costs are the biggest monthly expenditure we face.
However, there are plenty of very simple measures we can all take which will reduce the actual cost of our mortgage.
1) Shop around
First off, it’s important to emphasize the importance of shopping around for a mortgage, rather than always going to your bank.
The fact is that many of the very best deals come from lenders that you don’t find on the high street, so doing your research and comparing deals can lead to some seriously significant savings.
2) Use a broker
If you don’t want to handle it yourself, then it’s well worth speaking to a mortgage broker.
Not only are they more likely to know precisely which lenders are most likely to want to lend to someone in your position, they will often have access to lenders who don’t deal with borrowers directly.
3) Save a bigger deposit
The key factor in the interest rate on your mortgage is the loan-to-value - in other words, how big the loan is as a proportion of the overall value of the house. If you are borrowing 90% of the property’s value, it will come with a much higher interest rate than if you are borrowing 60%, for example.
So take the time to save a more significant deposit, and you’ll enjoy a smaller interest rate and therefore smaller repayments.
4) Adjust your mortgage term
Historically, most borrowers have opted for a 30-year mortgage term. However, you can change that term, to fit your circumstances.
By extending your mortgage term, you can cut the size of your monthly repayments, though it will mean you pay more overall as you’ll be paying interest on your outstanding debt for a longer period.
Alternatively, you can reduce your mortgage term. While this will increase the size of your monthly repayments, it does mean that your mortgage will be cheaper overall as you’ll pay it off quicker.
5) Overpay when you can
Along similar lines, it’s worth overpaying on your mortgage if you can afford to do so.
Most mortgages allow you to overpay by 10% each year without incurring additional fees, and doing so means that you will pay off the overall mortgage balance quicker, saving thousands in interest charges in the process.
6) Make use of your savings
An offset mortgage is a clever way to use your savings to cut the cost of your mortgage repayments. Essentially the idea is that your savings balance is offset against your outstanding mortgage balance, and you then only pay interest on the difference.
In other words, if I have a $150,000 mortgage and $50,000 in savings, and offset mortgage would mean that I only pay interest on $100,000 of that mortgage balance, which would mean a significant reduction to my mortgage bill.
The one downside is that with an offset deal, you give up the option of earning interest on your savings, though given the paltry rates on offer today that’s not as problematic as it once was.