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FOOL'S EYE VIEW
If you ask homeowners what their biggest financial fantasy is (apart from winning a lottery jackpot), the vast majority will reply, "Paying off my mortgage". At first, a home loan seems such an exciting thing, as it gets you on the housing ladder or helps you to buy the home of your dreams. However, long before you've paid 150 mortgage repayments (which is where I am today: halfway!), it starts to feel like a millstone around your neck. As my American uncle would say, "It's a short-term cherry, but a long-term lemon"! Of course, there are many things that you can do to lighten your home-loan load. Here are six ways to cut the cost of your home. 1. Demand a better deal from your existing lender This is the simplest and cheapest way to find a cheaper mortgage deal. By switching to a deal with the same lender, you avoid a whole host of charges, including legal and valuation fees. Simply call up your existing mortgage lender to explain that you're shopping around for better rates. Ask to speak to its "mortgage customer retention team", or find the contact details for "deals for existing borrowers" on its website. Be firm: remember that your lender has a duty to reward your loyalty and, if it's not interested in giving you a lower rate, casually mention that there are over 150 lenders out there queuing up to welcome you. Asking for a settlement figure or redemption statement usually gets their attention! Of course, this approach works best if you've been a good payer – and you haven't missed any repayments, have you now? 2. Check out the Best Buys To see what other lenders have on offer, browse through the Best Buys in the weekend newspapers, Teletext, Ceefax, and online – most are produced by independent researcher Moneyfacts. However, take these Best Buy tables with a pinch of salt, because lenders manipulate their charging structures to get into these tables. For example, an ultra-low rate may be accompanied by a sky-high application fee, as this article shows. Also, bargain-basement rates usually include handcuffs that lock you in to an unattractive rate for several years after your give-away rate has expired. These extended redemption penalties can cost you dearly in the long run. The best way to compare deals is to add up all the costs of a new home loan over, say, three years, as we explain here. 3. Use a no-fee mortgage broker Around three out of every five mortgages are arranged via mortgage brokers. Thanks to new regulations that came into effect last October, mortgages are now overseen by the Financial Services Authority. Although this should stamp out some of the worst industry practices, the fact remains that some mortgage advisers are better than others. For instance, why would you take advice from a bank's own mortgage adviser, who can only offer you deals from that bank's range? Surely going to an independent broker makes more sense, because s/he can trawl the whole market – over 8,500 mortgages - to find the best deal for you? And, what's more, why pay broker fees amounting to thousands of pounds, when some of the best brokers don't charge a penny for their advice? Personally, I'd recommend using an independent, no-fee mortgage broker every time. Well-known companies in this category include London & Country Mortgages or CharcolOnline (which does charge a fee for face-to-face advice) – both of which have exclusive deals that you won't find on the high street. 4. Flex your mortgage and overpay While you're arranging a new home loan, why not take some simple steps to make it easy to overpay it faster? With a mortgage that charges daily interest, every overpayment that you make will reduce your interest bill as soon as it clears your account. With flexible mortgages, you can overpay, underpay and take repayment holidays. By making monthly overpayments or dropping an occasional lump sum, you can slash thousands off your interest bill and reduce the life of your mortgage by years. This overpayment calculator works out how much you could save by overpaying. For example, overpaying £50 a month on a £100,000 repayment mortgage charging, say, 6% over 25 years would cut your interest bill by over £16,000 and knock over 3½ years off your mortgage term. Nice! 5. Fight back against failing endowments If you're one of the millions of homeowners whose endowments are doomed, I wouldn't recommend throwing good money after bad by upping your premiums. And, unless you have at least ten years left on your loan, I'd hesitate before investing extra money in shares to make up your shortfall. Arguably, the best way to tackle an endowment shortfall is to pay down your mortgage faster. For example, let's say that your endowment is predicted to leave you £20,000 short when it matures. By putting your details into the overpayment calculator, you can see how much extra you'd need to put in to clear your deficit by the time your endowment matures. Remember that overpayments into your mortgage effectively "earn" interest at your gross mortgage rate. This means that an annual mortgage rate of 6% is equal to a savings account paying 7.5% a year for a basic-rate (20%) taxpayer, or 10% a year for a higher-rate (40%) taxpayer. Few investments produce better returns than this, after accounting for their risk and volatility. 6. Slash your mortgage-related insurance policies After you've found a tip-top mortgage deal, don't stop there. I bet there are loads of other mortgage-related expenses that you could prune next. For example: I hope that this article helps you to become a more confident homeowner, and good luck with cutting the costs of owning your home! More: Find a cheaper mortgage and lower your insurance premiums.