A lower mortgage rate will give you some distinct benefits – so let’s look at what you can achieve by switching your mortgage to a better deal.
Lower monthly repayments
Mortgages are a big financial commitment and for many people it is a huge chunk out of their monthly income, leaving little left for other spending. Switching to a lower mortgage rate would reduce the amount you pay out each month, leaving more money in your pocket for other things whether it be new clothes, days out, home improvements or even a holiday.
Chance for an early payoff
Let’s say you’re able to get a lower mortgage rate on a deal that saves you £100 each month. You could choose to pocket this extra £100 to use for other things or you could use it to make a regular overpayment on your mortgage. By doing so, you’re paying off more of your mortgage capital which in turn will shorten the length of your term and you’ll be mortgage free earlier than planned.
For example, let’s say you have a £150,000 over 25 years. Normally you’d repay £600 per month, but by regularly overpaying £100, you’d manage to save over £5000 in interest alone. You’ll also have paid off your mortgage 4 years and 2 months earlier than your original target.
Build equity in your home quicker
If you’re looking to move to a bigger home then you’ll want to know you have enough equity in your current property to put you in a good position when it comes to financing your move. By switching to a lower mortgage rate, this will help you to pay off your mortgage capital more effectively (even more so if you can afford to make overpayments) meaning that you’ll build up equity in your property much quicker. This could make all the difference when it comes to being able to afford your dream home.
Afford your first home
Rising property prices often mean that first-time buyers struggle to get on the property ladder and many may struggle to afford the mortgages that are on offer to them from the lender. If you are able to offer a larger deposit, then this may well open up lower mortgage rates to you. Whilst this may be a bigger initial outlay, your monthly costs will be reduced by getting a better mortgage deal, which could save you thousands of pounds over the term of your mortgage.
Peace of mind
Whilst many of the lower interest rates come with variable or tracker mortgages, you can still find some competitive fixed rate deals on the market. Fixing at a low rate will give you peace of mind that your repayments are protected for a fixed amount of time. This will help you to avoid any impending rate rises. If you are in a secure job with no plans to move house within the next few years, then a fixed rate can be an excellent way of managing your finances. If you are looking for a greater deal of flexibility then you could still find a lower mortgage rate on a variable deal, but for a shorter length of time giving you the option to review your financial situation a little further down the line.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.