With the cost of living crisis affecting households across the UK we are sharing a number of ways that you can cut back on your household bills. Your mortgage is likely to be one of the largest payments you make each month and will likely take up the largest portion of your monthly budget. With interest rates on the rise, those anticipating a rise in their monthly mortgage payments can use our Mortgage Repayment Calculator to estimate how much expect they may need to pay each month.
In this article, we look at ways you can save money on your mortgage payments and what to do if you are struggling to pay your mortgage. If you find yourself in serious financial difficulty and are unsure where to turn, click here to find out where you can seek independent free debt advice.
How to save money on your mortgage
Your mortgage - or rent - is one of the most important monthly bill payments and you should ensure you keep up with your mortgage payments each month wherever possible. Mortgage or rent payments are also usually the most expensive monthly payment but there are still some ways in which you can try to save money on your mortgage each month. We list various ways to save on your mortgage below, but if you are struggling to make ends meet each month, click here for free debt help and advice.
Create a budget
If you are finding it hard to manage your monthly mortgage payments you should take a look at your budget to see if there is anywhere in your current finances where you can cut back on spending and put it towards your monthly mortgage payment. We have a handy budget planner that helps you to organise your finances and find out where your money is going each month. Alternatively, try downloading a budgeting app that can connect to your bank accounts and analyse your spending for you.
One of the best ways to save money on your mortgage each month is by remortgaging. Remortgaging is the process of moving your mortgage to another lender, ideally moving to a better deal or cheaper interest rate in order to save money. The most common time to remortgage is when you come to the end of your fixed-rate deal, to avoid moving onto the lender's Standard Variable Rate (SVR). The SVR is often much more expensive than a fixed-rate deal and so it makes sense to start the process of remortgaging up to six months before your existing fixed-rate deal ends. For more information on remortgaging and how it works, read our article 'How to remortgage in 5 simple steps'.
Additionally, with the increase in interest rates, you may be wondering if now is a good time to remortgage to another lender, we look at the best time to remortgage in our article, 'Remortgaging in 2022 - is now the right time to fix?'. We also share predictions on when interest rates are expected to rise (or fall) in our article, 'When will interest rates rise (or in fact be cut)? – Latest predictions'.
Finally, if you have an extended time period left on your fixed-rate mortgage and are contemplating remortgaging early, you may find our article, 'When is it worth paying an early repayment charge to remortgage early?' useful.
It is also possible to save money on your monthly mortgage payments by remortgaging to a better deal with your existing lender, also known as a 'product transfer'. A product transfer is the process of remortgaging to another mortgage product with your existing lender, rather than moving your mortgage to a new lender. In most cases, you can choose to remortgage to a better deal with a lower interest rate and a shorter mortgage term, if that is what you would like to do. An additional benefit of a product transfer is the lender may not require any further evidence such as wage slips or bank statements as you are already an existing customer.
Extend the mortgage term
Another way to save money on your monthly mortgage payment is by extending your mortgage term. You can usually do this by contacting your lender and requesting to extend or increase the mortgage term. Extending the mortgage term will usually reduce your monthly payments as you will be increasing the number of years over which you are paying the mortgage. You'll need to consider the fact that you'll likely end up paying more interest over the term of the mortgage as a result.
If you wish to reduce your mortgage term due to financial difficulty you should first consult your lender as they may be able to offer a temporary solution until your financial situation improves. You also need to consider that your maximum mortgage term may be limited by your age and most lenders are unwilling to extend a mortgage term past retirement or your 75th birthday, whichever is sooner.
Reduce the mortgage term
If you want to reduce the amount of interest you are paying on your mortgage overall then you could consider reducing your mortgage term. You can usually do this at any time, however, be aware that your monthly mortgage payments may increase significantly, so make sure this is something you can afford. Reducing the mortgage term, while it is likely to result in you paying more each month, will result in you clearing your mortgage sooner, meaning you pay less interest overall.
Move to an interest-only mortgage
An interest-only mortgage is different to a repayment mortgage in that you only make payments towards the interest on the mortgage rather than repaying the amount borrowed as well as the interest. As you are only paying towards interest the monthly mortgage payments are lower but you are not paying off the loan. As a result, the full loan amount is due at the end of the mortgage term so at some point you will need to switch to a repayment mortgage or have means of paying off the full amount owed at the end of the mortgage term. It is for this reason that interest-only mortgages are often only recommended as a short-term solution.
Overpaying on your mortgage can help you to save money on interest in the long term and can help shave a few years off the mortgage term, depending on how much you overpay. This can be a good option if it is something that you can comfortably afford, but it will result in your monthly mortgage payments increasing.
Do be aware that some lenders restrict the amount by which you can overpay and the method you can use to overpay, so ensure that you check your mortgage documents for any early repayment charges. Some lenders may also place restrictions on the method of overpayment, e.g lump sums or regular monthly payments, so again, make sure you check with your lender before you start to overpay. There are a number of online mortgage calculators available where you can find out how much you can save on your mortgage by making overpayments.
Do you have home insurance included with your mortgage?
Another thing to consider when trying to cut back on your monthly mortgage payments is whether you have home insurance included in a package with your mortgage. Typically buildings insurance is a condition of your mortgage but that does not mean it has to be a policy with the same lender, as these are often the most expensive and may not be the best for your circumstances. When you took out your mortgage did you have a deal with your provider that included home insurance and you are now paying this monthly in addition to your mortgage? Consider whether you are double-insured; you may have forgotten you had home insurance built-in with your mortgage deal. If this is the case, it may be cheaper to cancel the home insurance with your lender and take out a separate policy.
The quickest and easiest way to compare home insurance is via a comparison site such as Quotezone*. Comparison sites allow you to compare multiple providers at once to find the best deal. We have partnered with Quotezone* to allow you to search and compare cheap quotes from over 40 UK home insurance providers.
What to do if you’re struggling to pay your mortgage
If you are struggling to pay your mortgage the first thing you should do is contact your lender and explain your financial situation. Lenders will be keen to help and try to reach a solution to ensure you maintain your mortgage payments. It is especially important to try and do this before you fall into arrears or miss a monthly payment. Your lender may be able to help by switching you to an interest-only mortgage, this will reduce your monthly payments but not stop them altogether. Alternatively, you may be able to apply for a mortgage payment holiday with your lender where you agree to temporarily stop paying your mortgage. Not all lenders offer the option of a mortgage payment holiday, however, so you will need to speak to your lender to find out the options available to you based on your circumstances. You can find out more about mortgage payment holidays in our article, 'How do I take a mortgage payment holiday and will it affect my credit rating?' For additional help and tips on paying your mortgage, read our article, '7 tips to help deal with mortgage arrears'.
If you are struggling to pay your mortgage because you are unfit to work or you have been made redundant you may be able to claim on your income protection policy, if you have one. Income protection insurance is designed to pay out a percentage of your monthly salary to help cover the cost of bills if you are unable to work for a long period of time. Exactly what you are and are not covered for will depend on your particular policy so you will need to check your policy documents carefully to ensure you are eligible to claim. More information on insurance that covers your mortgage payments can be found in the following articles:
Where to get free debt help and advice
If you are feeling overwhelmed and struggling to pay your mortgage but are unsure where to turn, there are a number of charities and websites that are there to help you get on top of your finances and offer free debt help and advice. The worst thing you can do is not seek help as the problem will not go away but instead just get worse. If you are unable to afford your mortgage the best thing that you can do is notify your lender and see what help they can offer you depending on your financial situation. Most lenders have a number of trained professionals that are there to help those with debt problems or financial difficulty and will be keen to help.
If you have already contacted your lender and still require additional financial help, check out some of the websites below for free debt help and advice. You may also benefit from reading our article, 'The impact of debt on your mental health and how to get help'.