If you want to lower your mortgage payments but are unable or unwilling to remortgage, there are alternative options you can explore.
Extending the mortgage term
One method of reducing your mortgage payments is to increase the term of your mortgage, assuming it meets the lender’s criteria. However, it’s important to note that the longer you extend the mortgage term, the more interest you will end up paying over time.
Let’s consider a £100,000 mortgage with a 3.5% interest rate. We’ll compare the monthly mortgage payments for a 25-year term versus a 35-year term.
25-year term – £498.93 per month
35-year term – £498.93 per month
By extending the mortgage term from 25 years to 35 years, the monthly payment decreases by about £51.57. However, it’s important to note that extending the term will increase the overall interest paid over the life of the loan.
Switch to interest-only
Switching to an interest-only mortgage is an option to reduce your monthly mortgage payments. However, it’s important to note that there are certain requirements and considerations involved:
Firstly, lenders typically require a minimum equity of 25% in your property before allowing you to switch to an interest-only mortgage. This means you should have already paid off at least 25% of the property’s value.
Additionally, to qualify for an interest-only mortgage, you may need a repayment vehicle. This could be in the form of savings, investments, or another property. The purpose of the repayment vehicle is to demonstrate to the lender that you have a plan in place to repay the principal amount at the end of the mortgage term.
Let’s consider a £100,000 mortgage with a 3.5% interest rate and compare the monthly payments for an interest-only mortgage and a repayment mortgage over 25 years.
Capital repayment – £498.93 per month
Interest-only – £291.67 per month
Comparing the two options, the interest-only mortgage offers a lower monthly payment of approximately £291.67, but it does not contribute towards reducing the principal balance. In contrast, the repayment mortgage has a higher monthly payment but allows you to build equity and eventually pay off the loan.
Remember, these examples are for illustrative purposes, and actual mortgage rates and terms may vary. It’s important to consult with a mortgage advisor like Strive or lender to get accurate and personalised information based on your specific circumstances.
Speak To an Expert
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
Review your insurances
To save money on your mortgage or associated costs, reviewing your insurance policies, such as household insurance, life insurance, and critical illness insurance, is a recommended approach.
By shopping around and comparing quotes from different insurance providers, you may find options that offer the same coverage at a lower cost. This allows you to reduce the expenses associated with insurance cover while still maintaining the necessary protection for your home and personal circumstances.
It’s important to carefully evaluate the terms, coverage, and reliability of different insurers to ensure you make an informed decision and select the most suitable and cost-effective insurance options.
Take a payment holiday
Take a payment holiday (subject to lender agreement): Some lenders offer the option of taking a payment holiday, allowing you to temporarily pause or reduce your mortgage payments for an agreed-upon period, usually up to several months.
This can provide short-term relief if you’re experiencing financial difficulties. However, it’s important to note that taking a payment holiday is subject to your lender’s agreement and specific terms. During the payment holiday, interest will still accrue, and the missed payments will be added to the outstanding balance, potentially increasing your monthly payments in the long run.
It’s crucial to discuss the implications with your lender and consider the impact on your overall mortgage term and interest costs.
Switch to a new deal
If you are currently on a standard variable rate (SVR) or a tracker mortgage, switching to a fixed-rate mortgage can often result in savings on your monthly mortgage payments. Standard variable rates are typically higher than fixed rates, so by switching to a fixed-rate mortgage, you can lock in a lower interest rate for a set period.
The advantage of switching to a fixed rate with your current lender is that you may be able to do so through a product transfer. A product transfer allows you to switch to a different mortgage product offered by your current lender without the need for a full remortgage process.
This can be a convenient option if you prefer to stay with your current lender or if you want to avoid the costs and paperwork associated with remortgaging elsewhere.
Rent a room out
If you have extra space in your home or own additional properties, you may consider taking in a lodger or renting out your property. This can generate rental income that can be used to offset your mortgage payments.
However, it’s important to check with your mortgage lender to ensure you have the necessary consent to let the property, as some mortgages have restrictions on renting out properties without permission.
Additionally, becoming a landlord involves responsibilities such as tenant management and property maintenance, so it’s essential to familiarise yourself with the legal and financial obligations of being a landlord.
