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With the current state of the economy and the cost of living many people are now looking to reduce their Monthly Mortgage repayments. If you are one of them, you will need to know the factors which affect how your monthly Mortgage repayment is calculated.
To help you, we have put together a list of the factors which dictate how much you will repay toward your Mortgage each month. Making changes to any of these factors will result in a change in your monthly Mortgage repayments
Please be aware that the following information is intended to be purely factual in nature and should in no way be considered as advice.
Your Mortgage Balance
The lower your Mortgage balance, the less you will repay per month. Reducing your Mortgage balance will result in lower monthly repayments. If you wish to do this, you will need to discuss this with your Mortgage lender. Some Mortgage lenders will put a cap on the amount of capital you can pay off your Mortgage balance per year. Some Mortgage lenders will charge a penalty if you exceed this cap and may also charge you for processing over-repayments
Your Mortgage Term/Length
In most cases the longer your Mortgage term, the less you will pay on a monthly basis. However, the longer your Mortgage term, the more interest you will pay back to the lender overall.
Many Mortgage lenders allow customer to have a Mortgage term, which takes them to the age of 65 or even 70.
If you are paying your Mortgage back on an interest only basis, the length or term of your Mortgage will not have any impact on your monthly Mortgage repayments
Repayment or Interest Only
With a repayment Mortgage you pay both capital and interest back to your lender each month and at the end of your Mortgage you will owe your lender nothing
With an interest only mortgage you simply pay the interest which your Mortgage is generating each month. You pay the capital back in full at the end of your Mortgage term
If you have an interest only Mortgage your monthly Mortgage repayments will be lower than if you have the same Mortgage on a repayment basis.
Most Mortgage lenders will insist you have some sort of repayment or investment vehicle if you have an interest only Mortgage even if you only intend to switch onto Interest Only for a short time. The idea is that you contribute to an investment, through out the term of your mortgage. This investment is considered separate from your Mortgage and has nothing to do with your Mortgage lender. For example, a Pension, an ISA or an Endownment. This vehicle is intended to generate the amount of capital you need to pay your Mortgage off at the end of your Mortgage term.
As with any investment, some repayment vehicles can and do under-perform and this can leave people with an inability to pay off their Mortgage capital at the end of their expected term. This can result in severe financial difficulties, in people having to sell their home in order to pay back the capital and in extreme cases can put people's homes at risk
If you require advice on repayment/investment vehicles find an IFA using IFA Compare
It is likely that your Mortgage lender will need verbal confirmation of what you have in place. Some Mortgage lenders may even insist on written evidence of this.
On the topic of interest only Mortgages, most lenders will only allow you to switch to interest only if you are borrowing a specified percentage or less of you property value. For example, 80%, This is known as your loan to value.
Lastly on this topic, some Mortgage lenders will ask you why you wish to switch to interest only and will not agree if you wish to switch because you are experiencing financial difficulties
Your interest rate
The interest rate you pay on your Mortgage deal can have a big impact on your monthly Mortgage repayments. In general the lower the interest rate, the less you pay
Many people choose to keep an eye on the Mortgage market so that they can find lower interest rates as and when they become available and switch deals
It is possible that your current lender may be able to offer you a lower interest rate than the one you are currently on.
A lower interest rate does not necessarily mean in a better deal. If a deal carries high set up fees and redemption penalties or if you have to pay redemption penalties to come out of your current deal, you may find that the saving you make by getting a lower rate is undermined by the charges you have to pay to acquire the lower rate.
Independent Financial Advisers have access to the entire Mortgage market and can help you compare Mortgage deals and offer you advice as to which deal is best for you
Reducing Mortgage repayments due to financial difficulty
For people in financial difficulties who are unable to meet their monthly Mortgage repayments some lenders will agree a reduction in payments for a specific time. After this time the customer is expected to make up the difference between the reduced payments and what they should have paid back in the specified period. This sometimes allows people to get their finances under control. However, often this will have a severe negative impact on the customer's credit rating. If you are considering this option, your Mortgage lender will be able to tell you whether this option is available to you and the impact this would have on your credit rating
Some lenders will agree to repayment holidays, once again your lender will be able to confirm if this option is available to you and the impact this will have, if any, on your credit rating
Making changes to your Mortgage
Some lenders will charge a fee for making certain changes to a Mortgage. Your Mortgage lender will be able to inform you of any fees such changes would result in and the process you would need to go through if you wish to make a change to your current Mortgage. Your Mortgage lender should also be able to confirm what criteria you have to meet for any specific change to be approved by them and how easily such changes could be reversed if you decide to do this at a later date
Getting Mortgage Advice
Independent Financial Advisers are best placed to help you find the best Mortgage deal for you or to help you decide whether to make changes to your Mortgage. If you are looking for Mortgage advice, you can find the right Independent Financial Adviser for you by using IFA Compare.
Our service is completely free and simple to use so you can use IFA Compare to find an IFA for Mortgage advice today
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