This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
FOOL'S EYE VIEW
By
When my wife and I bought our home in December 1992, we received a card from some friends. It read, "Congratulations! It's customary to send a card to the new owners of a property. Please pass this one on to... the Abbey National!" Fast-forward almost twelve years and we've made, I think, 142 of the 300 mortgage payments required by our 25-year loan. So, we've almost halfway there, but have another 158 payments to go! However, because we have an interest-only loan, we owe the Abbey the same amount today as we did on the day we bought our home. Sadly, we were talked into buying an endowment mortgage, and the performance of our endowment policy has been disappointing, to say the least. After paying around £13,500 over twelve years, it is currently worth less than £14,300. In other words, I've made around £800 or around 6% in total. This equates to growth of around 1% a year, which is a truly dreadful return, worse than cash, property, bonds and any other investment I can think of! Of course, there's no way that this dodgy savings plan is ever going to pay off my mortgage, so I've been thinking of ways to make up the shortfall. Here are five that spring to mind: 1. Demand a better deal from your existing lender At the moment, I have a tracker mortgage: I pay the Bank of England's base rate plus 0.75%. With the base rate at 4.75%, I'm currently paying 5.5%. However, a quick check of the Abbey website shows that its best buy tracker follows the base rate less 0.31%, which is a current rate of 4.44%. However, this deal comes with a £499 upfront arrangement fee, plus a two-year lock-in with a hefty early settlement penalty. I don't like products with handcuffs, so I don't fancy this deal. Nevertheless, it's worth talking to your current mortgage lender before going elsewhere. All the major UK lenders have a 'turnaround' team, whose job it is to hang on to your custom. If you have a good payment history, you should be able to squeeze a much better deal from your lender by threatening to take your business elsewhere. Ask for a settlement figure or redemption statement – that'll grab their attention! 2. Move to another lender If your existing lender bank doesn't come up with a winning deal, it's time to try the opposition. Start by checking out the Best Buy tables in the weekend papers, Teletext or at the website of independent financial researcher Moneyfacts. Also, contact a reputable no-fee mortgage broker: I've referred dozens of friends and relatives to London & Country Mortgages, all of whom praised the service they received. Many lenders give incentives to switchers, such as help with valuation fees and legal expenses. You should take these into account, together with all other charges and benefits, when deciding which your best deal is. Learn more in How To Choose A Mortgage and How To Measure Up Mortgages. Also, I should plug the Fool's Mortgage centre. We can't guarantee to have all the Best Buys here, because our advertisers decide when they want to promote their products via the Fool. However, we currently have Best Buys and great deals from eight lenders, including Alliance & Leicester, Leeds & Holbeck BS, HSBC and Nationwide BS. 3. Switch to a repayment mortgage If your mortgage endowment is unlikely to pay off your mortgage when it matures (as will happen with perhaps eight out of ten current policies), you need to make arrangements to make up the shortfall. One way to do this is to convert all or part of your mortgage into a repayment loan. So, instead of paying only interest each month, part of your monthly repayment goes towards paying off your debt burden. Then again, almost all lenders will penalise you for switching, by charging a one-off 'conversion' fee - even though it's in their interests that you do so! This can be £150 or more, so it's worth asking about any charges before switching over to a repayment loan. 4. Overpay your mortgage This is one option that I definitely intend to explore. My wife and I are both higher-rate taxpayers, which means that we pay 40% tax on some of our income. By paying money off our mortgage, we are effectively earning a tax-free interest rate of 5.5% - our mortgage rate. To earn 5.5% in a taxed savings account, we'd need to earn 9.2% before tax. Since no safe investment offers this kind of return, 'saving' into our mortgage sounds like a good idea. In fact, multi-billionaire investment guru Warren Buffett agrees that, for most people, overpaying their mortgage is the best financial action they can take. A borrower with a £100,000 repayment mortgage, paying 4.75% could cut his/her interest bill by £11,396 by overpaying £50 a month. Even better, this overpayment means that the mortgage term falls from 25 years to 21½ years, which means 3½ years more fun! Before you rush off to set up a standing order or deposit a lump sum into your mortgage, check with your lender to make sure that you won't be punished for doing so. If you will be penalised, put the money into a tip-top savings account and whack it into your mortgage when you're free to do so. 5. Find cheaper mortgage-related insurance policies Having found a better mortgage deal, many borrowers stop there and relax. But there are huge savings to be made by shopping around for other mortgage products. For example, your mortgage lender may have encouraged you to buy one or more of these products: Finally, learn more about protecting yourself, your home and your family in Ten Ways To Protect Your Wealth. Good luck with whipping your mortgage into shape! More: Find better deals in our Mortgage and Insurance centres.