With mortgages being a hot topic in the media over recent months, here are a variety of tips to help you manage your mortgage.
- Record and retain key dates of your mortgage
This is a common pitfall we see when looking to help a client with their remortgage, most people will be on a specific deal with their mortgage provider, who will issue these deals with specified end dates. Often clients will approach us for a remortgage as it is 2 years since they moved into their property only to find that the rate ended a month ago, this is because lenders vary in their criteria and time frames allocated to their mortgage products. When your mortgage starts, it is important to record the “product end date” and schedule time 6 months before to start assessing your options.
- Plan for future changes to your mortgage
It is important to be in control of future changes with your mortgage and I would suggest a 6-month period before any current deal ends to start considering your options. Many mortgage providers will currently allow existing customers to switch rates 6 months before their rate is due to expire. Equally, customers considering a new lender can secure a rate with a new mortgage provider 6 months in advance, with a view to completion taking place after any early repayment charges finish.
- Make all payments on time
It is essential that customers make all payments on time and ensure that sufficient funds are in their bank accounts, to cover any mortgage payments. If funds aren’t available in your account, the payment will be returned to the lender. Many customers are under the impression that they can call the mortgage provider in the days following this to make the payment. However, this will be recorded as a “late payment” on your credit file. It is extremely difficult to obtain a mortgage with missed or late mortgage payments on your file. At best, you will be looking at higher interest rates if this happens. If you are unable to make your mortgage payments, you should always speak to your mortgage provider.
- Use an experienced broker to discuss options
The recent volatility in the mortgage market has made the prospect of a new mortgage daunting. Fixed-rate deals were always a good option for customers as they were cheap and guaranteed a monthly payment for the customer for a set period. For customers willing to take on slightly more risk, there are other options to consider such as discounted and tracker rates. I would suggest speaking to an experienced broker about your options to ensure you are on the best deal available based on your attitude towards risk.
- The lowest monthly cost isn’t always the best deal
Often, clients will approach me having spoken to various brokers asking for the “lowest rate”. However, the lowest monthly cost does not always mean the cheapest deal for you.
Often lower rates will have hefty fees linked with them. Instead, you should be looking to utilise the product and mortgage provider which costs the least over the deal period.
- Utilise flexible features of the mortgage
Many products will often have flexible features available. For example, the ability to overpay up to 10% of the mortgage balance per annum without any early repayment charges. If you can afford to do so, I would suggest overpaying on your mortgage each month but within these parameters. This will reduce your mortgage balance quicker than anticipated but may also allow you to utilise months where you don’t pay your mortgage as your account will be in credit. This is particularly useful around expensive times of the year. Always speak to your mortgage provider regarding flexible features.
- Evaluate the loan term
The overall mortgage term should be evaluated with the help of a mortgage broker at the point of remortgage. Circumstances can change and if your income has increased, for example, you may be able to reduce the overall mortgage term. Doing so will allow you to pay less interest over time and reduce your mortgage balance quicker.
- Prepare for the unexpected
Lastly, I would always advise that an amount equivalent to 3 months mortgage payments are kept as a savings reserve for emergency purposes. If this is not achievable, then speak to your financial advisor about protection such as critical illness cover and/or income protection. Even with a comprehensive employer sick pay package, unexpected life events can lead to financial difficulty and not being able to pay your mortgage could at best lead to markers on your credit file but at worse, lead to your home being repossessed.
By Tom Woodall MSc CeMAP DipFA, Independent Financial Adviser – Prosperity Wealth.
Tom has a master’s degree from the University of Nottingham and is an experienced adviser in the field of mortgages and protection. He has delivered “whole of market” advice to clients specialising in cases with complex income and difficult credit profiles. He has consistently managed a large caseload of clients juggling the different challenges as they arise! Tom has experience of advising on a wide range of transactions including residential, buy-to-let and commercial finance.