Here are five ways to save money on your mortgage and property.
Last month, I wrote five original property and mortgage tips. Now, I have five more original tips for homeowners, which can help you to reduce your mortgage debt and avoid unnecessary costs:
1. Snowball your mortgage
Do you have more than one debt? You'll pay a lot less interest if you make just your minimum-monthly repayments, except on the debt with the highest interest rate. With that most expensive debt, you pay as much as you can. Once you've cleared that debt, you can afford to pay more towards your second-most expensive, and so on. This is called 'snowballing'. It will seriously reduce the time it takes to clear your debts.
Most snowballers don't think to do this with their mortgages. However, it can often be done, and it should leave you better off than if you simply consolidate all your debts into a mortgage or secured loan.
If your lender will let you switch to an interest-only mortgage it will reduce your monthly payments and free up extra cash for your most expensive credit card debt. Once that card's cleared, you move on to your other cards. Once they're all cleared, you can afford to pay your mortgage at a much faster rate. Overall, you'll be better off.
For this to work, your lender must let you switch to interest only and it must let you make overpayments later on. This last point is crucial, as otherwise you will end up paying far more in interest over the full term of your mortgage.
Finally, be aware that sometimes there are charges for switching between repayment and interest-only, so you'll have to factor that in. It may not be worth it, so do your maths or speak to a broker who can work out the best option for you.
2. Stooze your mortgage
Mortgage interest rates are so low now that many people are over-paying. However, one reader commented that he's able to earn more interest in savings accounts (after tax) and ISAs than he pays in mortgage interest, making him better off saving than over-paying. This is called 'stoozing'. People have been doing this for years with credit cards. They've borrowed money with 0% deals and put it in quality savings accounts.
This is only a good option for those of you who are benefiting from an extremely low interest rate on your mortgage. This is because savings rates are also low at the moment, with the best instant access account paying just 2.75%. And don't forget you'll need to pay tax on any interest that you earn.
Plus, you need to keep a close eye on your mortgage rate. If it becomes more expensive than the interest you are earning on your savings, then you must immediately use all the savings and interest you've earned to pay off a chunk of your mortgage immediately. This will decrease the interest you pay overall and enable you to clear your debt faster.
You could enhance on this technique further if your lender will let you swap to an interest-only mortgage, because you can then afford to pay even more into a savings account.
Again, for any of the above to work you'll have to check that you can make overpayments on your mortgage, so that you can still pay your mortgage off within your agreed term.
3. DIY HIP
An idea I've been exploring recently is for sellers to put together their own Home Information Packs (HIPs), rather than hire a HIP provider. I've found it's only possible to save a little money by getting each of the documents you need separately, and I think most people wouldn't consider it worth the time it takes.
You can already save a fair bit of money by shopping around for your HIP, which doesn't take too long. So I'd just do that.
If you're counting every penny, you should consider trying to get some extra income with a job in a bar or supermarket instead, as you'll likely get more money per hour's effort, and that income can be ongoing.
If you still want to go it alone, I've found that the only people who advise against it are HIP providers themselves. Though many of them say otherwise, it's not complicated and the financial risk is actually very small - especially if you do your research thoroughly, and you are diligent in putting the HIP together properly.
For more information on HIPs, visit this Government website.
4. Don't leap into equity release
A little while back a company that sells equity release, Key Retirement Solutions, admitted that 67% of people aged 55-59 took out equity release to repay debts. That's worrying. These people have swapped one form of debt for another that will continue to eat away at the equity in their property, most likely for the rest of their lives. The interest will snowball. Not in a good way like in my first point: it will snowball uphill. That's what lenders would call 'the magic of compounding'.
Equity release is a reasonable way to get money sometimes, but you must carefully consider your alternatives. It's certainly not normally a good idea to use it to clear debts. If you're looking for debt solutions or want a second opinion on equity release, give National Debtline a call for some free, quality advice (the number is 0808 808 4000).
5. Estate agents: they're all the same!
I've been a tenant, homeowner, homeseller and landlord, so I've dealt with quite a few estate agents. I've not found one yet that adds value.
I think most buyers search the Web for local agents before going on the agent crawl, signing up with all of them. The agent does nothing useful except having an office in the right area.
Almost all agents sign up to Rightmove, which is by far the most popular website for people to search for properties. As all agents do it, it doesn't add any value.
None of them can really sell a house to the buyer. The buyers have to turn up and like what they see in the first 20 seconds. The agent's patter is irrelevant. The buyer will then do surveys and negotiate, whilst the agent will just be a middleman passing on messages between you.
Therefore, I wouldn't, as some people have told me they do, go for the one that sounds like the best salesperson. Go for the cheapest, unless they sound like total morons. And always haggle. You should get 0.5%-1% off their commission. It often works if you just tell them what you'll pay firmly but politely, and don't budge from that position.
I'd be interested to read home sellers' comments below on estate agents, particularly if you disagree. But please, let's try to avoid the whole thread being dominated by angry estate agents, equity-release salespeople and HIP providers!
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