How to SLASH your mortgage

FOR most of us, the monthly mortgage payment is our biggest regular bill. So keeping the cost of repayments as low as possible is the key to staying on top of your finances — and avoiding shelling out more than you need to in interest payments.

Borrowing is extremely cheap these days with ultra-low interest rates and a strong appetite from banks and building societies to lend.

There are several groups of homeowners who could benefit from a new loan.

SHOULD I START SHOPPING FOR A NEW MORTGAGE?

THERE are about four million homeowners paying a standard variable rate (SVR), which mortgages revert to at the end of a fixed-term deal.

These borrowers might be paying way over the odds each month. Some lenders charge as much as 5.59 pc, which is pretty expensive. But others charge as little as 3.2 pc, which is close to some of the best five-year deals available.

As well as potentially paying over the odds, there is little security in paying a SVR as banks and building societies are allowed to set their own level — increasing or cutting when they see fit.

If the Bank of england base rate does go up later this year — as expected — then you can bet that mortgage lenders’ SVRs won’t be far behind in increasing.

Anyone due to come to the end of their existing fixed-term loan soon should also start looking for a new mortgage.

If you’re in the middle of a fixed deal, then moving to a lower rate could be expensive because of exit penalties. But do the sums, as it might be worth your while if you’re on a high rate.

You may think that the smart way to pick a home loan is simply by looking for the deal with the lowest rate.

But it’s important to look at other costs that are part and parcel of a mortgage — the arrangement fee alone can run into thousands of pounds.

Fees can also have a greater impact on shorter-term loans, says Charlotte Nelson, of Moneyfacts. ‘Borrowers on two or threeyear deals will have to remortgage just a few years down the line, which could see them paying out yet another hefty fee,’ she says.

As a broad rule of thumb, if you have a mortgage of less than £120,000, then you’ll probably be better getting a higher rate, but lower arrangement fee.

If you’ve got a loan of more than £250,000, you will typically benefit from getting the best rate you can and paying a higher fee. But the only way to assess that for your own circumstances is to run the actual numbers, or get someone else to do it for you.

WHY YOUR AGE MIGHT NOT MATTER

GETTING a mortgage when you’re older can be tricky because banks and some building societies are nervous about lending to those who are retired or are about to.

Most mortgage lenders will not approve loans that stretch beyond the age of 70 or 75, when income is expected to fall. Many will not go beyond 65.

however, some building societies are flexible. For example, David hollingworth at London & Country, the fee-free mortgage broker, says: ‘ National Counties, Family Building Society and Bath Building Society do not have a specified maximum age and so will review each case they receive.’

Ipswich Building Society and Kent Reliance will consider borrowers up to the age of 85.

When it comes to banks, one has taken action to help older borrowers. Metro Bank recently removed its maximum age limit and will deal with each applicant individually. There is hope for the future, as building societies have pledged to review maximum age limits on borrowing.

OBSTACLES TO GETTING A HOME LOAN

WHEN you apply for a mortgage, the offer may last for three to six months, so it’s not too early to start looking, even if your existing loan doesn’t expire until the summer.

If you haven’t applied for a mortgage in the past couple of years, you will notice a marked change in the attention that banks pay to your finances — particularly to your income as well as outgoings.

Those who run their own businesses or work as a contractor or freelancer might struggle to get a mortgage as many banks want evidence of three years of accounts filed to HM Revenue & Customs, which isn’t possible for some. A broker can help by approaching lenders that specialise in catering to the self-employed and are suited to your particular circumstances.