With 2021 fast approaching, it’s time to start thinking about your new year’s resolutions. This year, on top of any promises to learn guitar or start jogging, why not also consider making a change that will benefit your finances?
If you have a mortgage, it’s likely to be one of the biggest commitments you will make, so it’s important to manage it effectively. Here are three useful mortgage new year’s resolutions that you should make.
1. Don’t stay on your lender’s Standard Variable Rate
One useful new year’s resolution that you can make is to ensure that you’re getting the best possible deal when it comes to your mortgage payments.
When a fixed, tracker or discount deal comes to an end, your lender will typically switch you to their Standard Variable Rate (SVR). This is generally higher than other fixed or tracker rates that may be available.
Despite this, many Brits remain on their lender’s SVR for long periods of time even though it might not be in their best interests.
According to market research by credit reporter Experian, almost a quarter (23%) of people whose mortgage was on their lender’s SVR said that they had not switched to a new deal because they thought remortgaging was too complicated. A further 16% said that they were unaware that being on the SVR was more expensive.
Switching away from your lender’s SVR can help you to significantly reduce the cost of your payments and enable you to manage your mortgage in the most effective way.
If you struggle to understand which mortgage product would be right for you, you may benefit from speaking to a mortgage broker. A broker can scour the market to find you the best possible deal for your mortgage, so you aren’t paying any more than you have to.
2. Find the right type of insurance
A mortgage is likely to be one of the biggest financial commitments that you will make, which is why our second useful new year’s resolution is to find the right type of insurance to protect you in case the worst should happen.
The peace of mind that insurance can give you is invaluable, knowing that if you were to be ill for an extended period, or pass away before the mortgage is repaid, you and your family would be supported financially.
Two of the more popular insurance products to consider are Income Protection and Critical Illness Cover.
Income Protection can allow you to keep on top of mortgage payments if you are unable to work for a period of time due to accident or injury. After you have been off work for a certain amount of time, typically four to eight weeks, Income Protection will pay a portion of your salary. This will enable you to stay on top of your bills whilst you recover.
It is important to bear in mind, however, that Income Protection does not cover every illness and you may not be covered for pre-existing conditions.
Critical Illness Cover, on the other hand, will pay you a lump sum if you are diagnosed with a serious illness. You can then use this money to repay debts, such as a mortgage, so you can focus on your recovery.
The illnesses covered by this insurance will vary between insurers, but it typically covers cancer, heart attack, stroke, and a variety of other serious conditions.
If you are diagnosed with a serious illness, concerns over debts are the last thing you need to worry about. This is why Critical Illness Cover can help you rest assured, knowing that you’re protected if you are diagnosed with a serious illness.
3. Overpay on your mortgage if you can
Our final new year’s resolution to consider is overpaying your mortgage where you can and within the terms of your deal. Overpaying your mortgage by even a small amount each month can help you to repay your mortgage more quickly.
According to the Halifax Overpayment Calculator, if you took out a £200,000 mortgage with a 2.5% interest rate over a 25-year term, and you overpaid by just £100 per month, you would save £9,946 in interest over the remaining term of your mortgage.
Overpaying can be a good idea when interest rates on savings are very low. This is because the interest you would be charged on your mortgage is likely to be greater than the interest you would have earned on your savings.
However, it’s worth noting that many mortgages will typically carry an Early Repayment Charge during your initial fixed or tracker period. If you overpay by too much a charge may apply.
Many mortgage products typically allow an amount of overpayment without incurring a charge. This amount tends to be around 10% of the mortgage balance each year, although it tends to vary by product and lender.
To avoid having to pay an Early Repayment Charge, you should always check the terms and conditions of your mortgage before overpaying.
If you’re considering making overpayments to your mortgage, you may benefit from speaking to a mortgage broker who can help you to work out how much you can overpay without triggering any charges.
Get in touch
If you want to manage your mortgage more effectively in the coming year, we can help. Email enquire@london-money.co.uk or call us at (0207) 808 4120 to find out more.
Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.