Those of us with mortgages – and this is the biggest debt most people will take on – should realise that the management of it is very important. There is a whole range of types of mortgage - if your income is relatively low and you want the security and certainty of knowing what your out-goings will be each month then a fixed-rate mortgage is a good thing for you - you will pay a bit more per month for the security it brings. Every two or three years I review my mortgage and change according to my circumstances. I would recommend that you take out a mortgage with a ‘mutual society’ rather than a bank. This is because they are not making profits for shareholders but for their members and so they give better interest rates.
In recent years in this current economic era new mortgage borrowers have found that the size of the deposit/down-payment required from them has increased and so it has become more demanding financially. You need to review your mortgage arrangements regularly and move or consider moving regularly. There are comparison websites you can look at, or mortgage advisors you can talk to, who will give you current information on this.
Many people do not realise that if you can over-pay on your monthly mortgage payments, even by a few pounds, it will make a massive difference in later years. This is allowed to a certain extent by the terms of most repayment mortgages, other types (e.g. endowment mortgages) may not let you do this. If you can’t manage, say, an extra £25 a month, then consider rounding up your monthly payment to the nearest £10. Done early on in the life of a mortgage, even this small move could save you two or three years of payments at the end of your mortgage term!
Another thing to consider is to shorten the term of your mortgage. This will mean you pay more per month over fewer years. Mortgages of 25 years were the standard that was set up because there were no computers to work out all the different payment options for shorter-term mortgages - it can all be calculated very quickly now. And make sure that your interest rate is calculated on a daily basis rather than an annual interest rate – that will also make a massive difference.
This series of blogs is based on the annual Stewardship seminar from King's Church London