Money: Pay more on your home loan and save a fortune
Sunday 23 May 1999
Thousands of Australians cut the cost of borrowing by paying their mortgage fortnightly. Ask your lender if it will let you pay every other week rather than once a month. Then you simply divide up your usual monthly payment and pay half that amount each fortnight. This can make an extraordinary difference because there are 26 fortnights in a year, but only 12 months, it is equivalent to making 13 monthly payments a year. This can cut the length of a loan by three years.
Pay at a higher rate
With UK interest rates at their lowest for years, you can get ahead on your mortgage by playing a psychological trick on yourself. Switch from a standard variable-rate loan to a cheaper flexible or fixed-rate loan but continue to pay off the loan as if you are still on the old rate. This has two advantages. If rates stay low, you will be overpaying and reducing the cost of your mortgage dramatically. If rates do start to edge up, it won't be a shock to your finances.
Use your equity
Equity is the difference between the current value of the property and the amount you owe your lender. Flexible loans allow you to draw back this equity instead of getting personal loans. If you have paid off your whole mortgage, an equity release loan allows you to use the equity in your house to get secured loan rates, which can be substantially cheaper than ordinary personal loan rates.
Get lenders to pay
If you are thinking of remortgaging, you will find plenty of deals where the lender is prepared to pay some of the cost of switching your loan, such as valuations or legal fees, or discounted home insurance.
Most lenders will allow you to make one-off or regular overpayments. If you are with a lender that re-calculates once a year, time the overpayments so the money goes in just before the calculation.
If you opt for a flexible or "all in one" mortgage, you can save thousands of pounds by consolidating your borrowing in with your mortgage. Mortgage rates are the cheapest on the market, usually half those of personal loan rates, a third of credit card rates and a quarter of overdraft rates.
A useful trick is to forego the month gap that often occurs between completing a mortgage and paying the first installment. By insisting to your lender that you make the first payment as soon as your loan starts, you will always be a month ahead and the first payment will earn you a saving of mortgage rate interest for the rest of the term.
Avoid bridging loans
Avoid short-term loans at all costs or you can find yourself paying high rates and running two loans side by side. Get heavy with your solicitor and lender to synchronise your sale and purchase - it's far cheaper.
n Adrian Webb is marketing manager at Virgin One.
FLEXIBLE MORTGAGE DEALS
n Egg, 0845 600 0290. Variable rate: 5.99%. No MIP, free valuation, free legal fees or pounds 200 for remortgages.
n Woolwich, 0845 607 6666. Fixed rate: 5.65% (to 1.8.04). No MIP. Fee: pounds 295.
n Standard Life Bank, 0845 845 8450. Discounted rate (six months): 4.55%. No MIP, refund of valuation, pounds 200 or free legal fees on remortgages.
Current account mortgages
n First Active Financial, 0345 743743. Rates currently 6.24%-6.74%. No MIP and free legal fees for remortgages.
n Virgin One, 0845 800 0001. Rates 6.35%-6.95%. No MIP and free legal fees on remortgages.
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