How to Stay on Top of Rising Mortgage Repayments and Safeguard Your Home

Introduction

The mortgage market has experienced recent upheavals, with interest rates on the rise and lenders withdrawing offers due to overwhelming demand. This has left homeowners concerned about keeping up with their mortgage repayments. In this article, we will explore various options available to help you stay ahead of rising mortgage costs and protect your home.

Explore Interest-Only Mortgages

Interest-only mortgages, which gained popularity again after the previous financial crash, allow borrowers to pay only the interest each month, without reducing the principal amount.

This can significantly reduce the amount you are committed to repay each month, better yet you can usually make up the difference with an overpayment so that you are still on track to repay your mortgage within your target. During a mortgage appointment We will examine the eligibility requirements associated with interest only mortgages, repayment strategies, along with potential benefits and drawbacks of interest-only mortgages, helping you make an informed decision.

Leverage Your Savings with an Offset Mortgage

If you have substantial savings, an offset mortgage can help reduce your mortgage costs. By linking your savings to your mortgage. Essentially any savings held in your offset account reduces your mortgage balance for interest calculating purposes. In simple terms, If you have a £120k interest only mortgage at 5% per month you pay £500 per month. If your mortgage came with an offset account and you had £60,000 in there, this would reduce your mortgage balance for interest calculating purposes to £60,000 thus reducing your monthly payments to £250. Offset mortgages are available for home movers, remortgagers and first time buyers but rarely come up for buy to Let mortgage products. We will explain how offset mortgages work, highlight the potential benefits, and discuss factors to consider before opting for this type of mortgage.

Explore Mortgage Term Extension

Extending the term of your mortgage can lead to lower monthly payments, offering short-term relief at the cost of increased interest repaid overall due to the extra months/years added. Speak to a mortgage broker when it comes to term extension as we discuss important considerations, such as the ability to make mortgage payments in retirement, overpayments and the long-term cost implications. It's crucial to weigh the benefits against the additional interest payments over an extended term.

Payment Holidays

Payment holidays on mortgages gained popularity during the Covid pandemic as a temporary relief for homeowners facing financial difficulties. In this article, This means you will not need to make your monthly repayments for a set period usually 3 months. This method should only be used if you are stockpiling the money you would have spent on mortgage payments to be used as a top up fund if you are struggling to meet your mortgage commitments following the holiday. Another important fact to note is that the interest you would have paid during the holiday will be rolled up and added to your balance which will increase your normal monthly mortgage payment following the holiday. This can be combated by paying the interest as an overpayment during the payment holiday For more information speak to your mortgage lender.

Temporary Rental of Your Property

Renting out your property temporarily can generate additional income to cover higher mortgage repayments. Most lenders will offer “consent to let” if you plan on returning at some point in the future, or you can perform a BTL remortgage if you do not intend on returning. Speaking with a mortgage broker will help to outline the process of obtaining a "consent to let" agreement from your lender or a buy to let mortgage. highlighting the restrictions and requirements involved. Additionally, we will touch upon the potential benefits and factors to consider before pursuing this option.

Lump Sum Overpayment:

If you have some money saved that is earning less interest than your mortgage rate, it might be a good idea to allocate some of it to your mortgage account. This will reduce your monthly payments and the overall amount of interest charged.

Typically, you have the option to make an additional payment of up to 10% of your mortgage balance each year. For example, if your mortgage balance is £120,000, you can overpay by £12,000. There's a strategy you can use to maximise your overpayment allowance. The overpayment facility usually resets annually, so you could plan to make a 20% overpayment over two days. Here's how it works: Let's say you have a calendar year. On December 31st, you make a 10% payment towards the balance, and then on January 1st, you make another 10% payment. This way, you can take full advantage of the reset and make a larger overpayment. Another strategy for larger amounts would be to pay between the time your current fixed rate comes to an end and the new rate starting, as during this period you can overpay as much as you please!

Consider a Tracker Mortgage

While fixed-rate mortgages are popular, the current market volatility may lead to higher fixed rates. In such situations, tracker mortgages linked to the Bank Rate often provide a lower rate mainly because you will be taking the risk. A lender will make their margin between the rate offered and the bank of England's base rate, so if the base rate goes up, your rate will go up which is also true if the base rate were to go down. It is essential to speak with a mortgage broker before considering a rate such as this one due to the risks associated, and we can weigh the benefits and risks associated so that you can make an informed decision.

Conclusion

As mortgage rates rise, it is essential to stay proactive and explore options to manage your mortgage repayments effectively. By considering alternatives such as interest-only mortgages, offset mortgages, term extensions, or temporary rentals, you can navigate the changing market conditions while safeguarding your home. Remember to thoroughly assess each option's benefits, risks, and long-term implications to make an informed decision that aligns with your financial goals and circumstances. Speak with More FInancial now for expert mortgage advice.