Let’s be honest, in uncertain times when inflation is high in the UK, can be a great way of saving thousands of pounds, either by reducing the term or the repayment. But would be this the best solution for your case?
However, it is necessary to think about several aspects before renegotiating your mortgage, following a few steps to make the required changes. You may also have some questions to be answered before starting the whole process.
For example, is it worth it to have a monthly break through the reduction of the instalment or end the credit earlier than initially planned, thanks to the reduction of the term? Your answer may vary according to your budget and expectations.
It is important to highlight that you should use tools such as a mortgage calculator to help you to have a better idea of the total costs of monthly repayments. You can check how it works on this 180k mortgage example.
Here are some ideas on how the repayment of your mortgage can be a good decision.
Transferring to Save It
As a first buyer myself, I have thought about saving as much as possible in the next five years to don’t get any unpleasant surprises in the future.
Whether through direct renegotiation with your bank or transferring your credit to another institution, the goal is to save. And it is possible to do it with the reduction of the term or the monthly instalment. You have several ways of saving to repay it.
This is not only applied to those who are going to take out a home loan for the first time, but also to those looking to transfer their credit to be able to keep up with the evolution of the market.
Reduce Monthly Payment
Another way of guaranteeing you your savings is reducing your monthly payments which will certainly bring two immediate consequences on a loan: a reduction in the monthly instalment and the total cost of financing.
You can also extend the term of the contract. This will allow you to have a budgetary slack that can be channelled to pay other expenses, pay debts, avoid possible default situations, or even reinforce savings.
Just make sure you check the interest first, reducing payment can increase the fees and you will end up paying much more than expected.
Shorten the Deadline
This is probably my favourite alternative in this case. In both cases, when you are renegotiation your mortgage, and in the transfer of a housing loan, it is possible not only to increase but also to decrease the term of payment.
The term, which is negotiated between the customer and the bank, corresponds to the duration of the credit agreement.
Suppose you are in a good position when it comes to your mortgage terms. In that case, you can take advantage of a proposal with more attractive conditions (such as a reduction in the spread) to maintain your instalment, which would reduce the term of the contract, as well as thus reduce the total cost of the credit contract.
If your budget permits, you can reduce the term and increase the value of your monthly payment with credit. What do you gain from this? You will probably save a lot of money, as it shortens the term of the contract, so you pay less interest.
Remember that the best option is also the one that does not compromise your family budget, allowing you to have a monthly break to make savings or to pay other charges.
It is the key to finding out if repaying your mortgage can be a good solution to improve your financial situation.