COMMENT
Fancy Christmas For Free?

By Alison Hunt (TMFAlly)
December 7, 2005

Although most of us appreciate that Christmas is an expensive time of year, it's still surprising to realise how much it can actually cost. A recent study by the Bradford & Bingley has revealed that consumers are expected to spend a whopping £615 for Christmas! Gifts, food and drink, and entertainment are the major culprits and many of us will be turning to our flexible friends to see us through the festive season.

However, how would you feel if I were to tell you that there is a way to re-coup this money, and effectively give yourself a free Christmas? And the answer is simple - re-mortgage your home. If your mortgage deal has come to the end of its introductory deal you will undoubtedly now be paying your lender's Standard Variable Rate (SVR), of typically 6.75%. By re-mortgaging to a cheaper deal now you could save yourself hundreds, if not thousands of pounds each year!

Consider this: Tom and David both have 25-year, £120,000 repayment mortgages. They are both paying their lender's SVR at 6.75% APR which makes their monthly payments £829.

David, however, reads the Fool regularly and decides to re-mortgage his property. He finds a competitive deal at just 4.5% for two years and re-mortgages. His payments are now just £667, meaning that he is now paying £162 less each month than Tom - or £1,944 less each year! And with Christmas having cost £615 it only takes a few months of mortgage savings to have paid it off!

However, David is extremely Foolish and decides to go one further. As he considers this saving a bonus, he decides to alter his mortgage payments to take this into account. He gives his lender a ring and asks if he can overpay by that £162 each month. As the mortgage he has switched to is flexible, it allows over and underpayments. His lender is therefore happy to agree and David formally clarifies his overpayment with a letter.

So what effect do the £162 overpayments have on David's mortgage? Well, David's monthly payments revert to the £829 he was paying before. However, by making the extra payment he has reduced the interest payable on the whole loan by a massive £26,750, and shaved a whopping 7.6 years off the term too, meaning his home will be his in just 17½ years. Blimey! He just can't wait to smugly tell Tom!

So if you're a homeowner paying your lender's SVR who fancies covering the cost of Christmas, get to work finding a great re-mortgage deal. There are plenty advertised in the national weekend newspapers and you can find a stack right here, in the Fool's Mortgage centre. Don't forget to call your lender to find out what it can offer you too.

However, if you're really canny, think long term. Pick a flexible mortgage and overpay by any monthly payment saving you make. If you set up the payment right at the start your budget won't feel the difference, but your income over the remaining term of your mortgage certainly will!

Find out more about re-mortgaging or snap up a great deal in our Mortgage Centre.