A home is usually the most precious thing we own and the biggest financial commitment we make in our lives. Unfortunately, mortgages typically have expensive interest rates and complicated repayment terms that are designed to make us pay more for our homes than we actually need to. With that in mind, here are four smart ways you can beat the bank and lower your mortgage.

Put down a larger deposit

If you haven’t bought a house yet, it could be worth spending extra time saving for a deposit before you secure a mortgage and close a deal on your first home. Ultimately, the bigger your down payment the less money you’ll have to borrow and interest you’ll pay over time. So, put any extra cash you have straight into your house-deposit fund, be it bonuses, inheritance money or extra income.

You can also find ways to reduce your current housing costs to boost your deposit. Can you stay with family rent-free for while? Or perhaps you could reduce your rental costs by downsizing or moving to a cheaper area? Aim to save at least 20 percent of your target home’s value as a mortgage deposit, or more if you can afford it.

Overpay on your mortgage each month

Considering savings rates are currently at an all-time low, it could make sense for you to put money towards paying off your mortgage rather than into an ISA or any other savings account. Paying just £50 to £150 extra on top of your agreed repayments each month can reduce your mortgage term and your overall debt by thousands of pounds.

First, check the interest rates on your savings account and mortgage, if the rate for your mortgage is higher than your savings, it makes sense to put more into your mortgage. Although most lenders allow you to overpay by at least 10 percent a year, others may charge early repayment or overpayment fees, so check the terms of your mortgage agreement first.

Cutbacks and alternative income streams

Think about ways you can make extra money to either save for a larger deposit or make regular mortgage overpayments. The easiest way to do this is to look at your current outgoings. Track everything you spend for a month to see where you can make simple cutbacks. For instance, switch to cheaper utilities and services, stop a gym membership you never use or simply take lunch to work rather than eat out every day.

Aside from streamlining your living costs, consider alternative income streams. Could you make money by taking in a lodger for instance, or renting out a room in your home to short-term letters? If you live in a city like London or a popular holiday spot, you could potentially make thousands of extra pounds per year through listing your spare room on sites like Airbnb, for instance. Just make sure you check the rules and regulations about this carefully.

Other alternative income streams include setting up a side business, earning passive income through websites and affiliate schemes or making clever investments. A large windfall such as an inheritance payment, tax rebate, bonus or even a lottery win could pay off a huge lump of your mortgage. Often, lotto winners pay off debt such as their mortgage to give them some security before investing in new ventures with their lottery winnings.

Shop around and re-mortgage

Banks and mortgage lenders will usually offer new customers a competitive rate for an initial, introductory period. Once this is up, you’ll likely get shifted onto an expensive Standard Variable Rate (SRV). This is where the banks really make their money and how they can afford to give such great introductory rates.

To beat the banks at their own game, shop around towards the end of your introductory mortgage period to find a more favourable rate with another lender. Before you switch, it’s worth asking your current lender if they can offer you a better deal, which they often will to keep your custom. If you do want to switch, make sure you factor in any exit charges you may have to pay under your current mortgage agreement.

These simple but effective methods can potentially save you thousands of pounds in interest and help you pay off your mortgage years faster than expected.

By Dima Midon

© 2017 Dima Midon - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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