How to Reduce Mortgage Payments
Lower Mortgage Interest Rates by Moving from Standard Variable Rate
Nov 27, 2008
As the cost of living and personal debts continue to rise, securing a lower mortgage interest rate to bring down mortgage payments has never been more important. Moving from a Standard Variable Rate to a fixed or tracker mortgage could save a borrower thousands each and every year.
Costly Standard Variable Rate Mortgages
If it has been several years since the last remortgage, there is a strong possibility that the borrower is on a Standard Variable Rate (SVR). SVR only serves to help the lender as the rate is typically 2% or more above the Bank of England base rate.
It is possible to save money by getting a remortgage. Getting a tracker or fixed rate mortgage can literally save hundreds every month. For example, an online mortgage calculator reveals that a fixed rate mortgage at 5.5%, as opposed to an SVR mortgage at 7.5%, would save a borrower £250 each month.
This saving could be used to reduce the mortgage term and minimise total interest paid. It could even be the difference between being able to afford the mortgage payments if debt problems present a worrying life issue.
Subprime Mortgages for Those with Adverse Credit
Subprime mortgages are designed for customers that have adverse credit. That includes those with statutory defaults, CCJ's or missed payments. The adverse credit market has increased massively because of the volume of serious debt problems in the UK.
Mortgage interest rates vary considerably between borrowers, but getting the best one based on a customer's credit profile is key to saving money. Those with a subprime mortgage can be paying as much as double that those with good credit pay.
Once making payments for a couple of years, it can be sensible to get a review to see if a better mortgage interest rate can be achieved. A better payment record should mean that a customer can reduce mortgage payments.
The Subprime Mortgage Mis-selling Scandal
Many customers have been victims of adverse credit mis-selling. Subprime mortgages for the most serious credit problems, such as bankruptcy, have been sold to those with only minor adverse problems like a late monthly payment.
Subprime mortgages have even been sold to those with perfect credit because the borrower was told that they couldn't get a mortgage because of being self employed. This was to secure mortgage advisors higher commissions which isn't legal.
If sold a subprime mortgage, check to see if the loan agreement is an unenforceable mortgage agreement for reasons eluded to. This could entitle a borrower to compensation or even have the entire mortgage written off in certain circumstances. A Financial Ombudsman is able to make a decision regarding this matter.
Existing Fixed Arrangements - Early Redemption Penalty
If a fixed rate mortgage has been agreed when interest rates were higher, it is possible to move to another lender but an early redemption penalty will be charged. Realistically, it is only sensible to seek a more favourable mortgage interest rate when the fixed term ends and switches to Standard variable rate.
Independent Mortgage Brokers
Independent mortgage brokers are able to check the entire market for the most favourable deal. Most banks are tied agents and can only offer their own restricted product range. Don't simply use the same mortgage provider because it's easier as the small fee paid will save a lot more than it costs.
Credit Report
It is possible to get a copy of a personal credit report from Experian, Equifax or Call Credit. Check the report for any errors as these can be corrected. Correcting errors can result in a better credit rating and mortgage interest rate being offered.
There are some favourable offers available in the current market that will allow a borrower to cut mortgage payments. Use an online mortgage calculator to check potential savings and always utilise the services of an independent mortgage broker so that the entire market can be checked for the best deal.
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