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Tips for Reducing Cost of Mortgages
By Richard Pettinger
Our mortgage is the biggest monthly outgoing we face. Because it takes a high % of our income it makes sense that we try hard to reduce our mortgage payments as much as possible. There are two different aspects to reducing our mortgage. The first is reducing our monthly payments and the other is reducing the total cost over the life cycle of the mortgage. Often strategies to reduce our monthly payments cause an increase in the total cost. This article focuses on the way to reduce the total cost.
Here are some tips for reducing the cost of a mortgage
Always Remortgage
This is the most important piece of advice for any homeowner. Remortgaging to the lowest rate can save £1000s each year. Most mortgage companies take advantage of the fact that homeowners do not remortgage, but just stay on their existing standard variable rate. However, even if you just ring up your mortgage company and say you want to remortgage they may offer you a significantly lower monthly payment. Therefore, always be aware of when your mortgage contract ends and then search online and through other ways to find the cheapest deal. Note, it may take a few hours, but given the stakes involved it will be time well spent. Note, in a recent survey in the UK, it was found people spent longer on researching a holiday than they did on researching a new mortgage deal. But, if they spent more time on finding cheapest mortgage, they could probably have a holiday for free!
Current Account Mortgage
A current account mortgage enables you to combine your mortgage into your current savings account. This means that if you have significant savings in your current account they will be automatically used to reduce the mortgage balance and therefore, reduce your monthly repayments. As a further benefit you will not pay any tax on your savings. If you are a high income tax earner this can be quite significant. Current account mortgage also leads to less paperwork.
Tracker of Fixed
It is important to have an idea of whether you should get a fixed rate mortgage or a tracker. A fixed rate is good if interest rates are forecast to rise. But, a tracker is good if interest rates are falling. With a downturn in the economy looming interest rates in the UK and US are likely to fall. Therefore, a tracker mortgage provides an excellent way to make sure you benefit from the falling interest rates.
Making Extra Payments
Making extra payments is the most effective way to reduce the total cost of a mortgage because it save interest payments on the loan. If you can afford to make extra monthly payment you will save interest and pay off your mortgage sooner.
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R.Pettinger is a trained economist and manages a site about Mortgages in the UK. This site includes a guide to Interest Rate Predictions, the UK Housing Market and general issues of finance http://www.mortgageguideuk.co.uk/
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