Make the most of lower mortgage payments
This month’s base rate cut has meant significant savings for many homeowners, particularly those on tracker and variable-rate mortgages.
Let’s say your typical rate on a £150,000 mortgage has gone from 6% - making your payments just over £966 per month – down to 4.5% after two years, reducing your payments to £873 per month. That’s a £93 saving each month, or £1,116 over the course of the year.
Of course, families who have been hard-pressed by rising mortgage payments in the past may need to put their savings back into the household. But if you have been coping with your mortgage payments, there are a number of ways to put your new mortgage savings to good use – and here we take a look at a few.
Pay into a savings account
By taking your mortgage savings and putting them into a savings account, you can make your savings stretch even further.
Assuming you pay your total annual mortgage savings of £1,116, in monthly instalments, into a 4% savings account, you would end up with £1,136.69 after one year. If you combine this with existing savings accounts, your returns could be even higher.
Pay off other debts
If you have other debts that have been pushing your finances to the limit – or even if you are comfortable financially – paying off other debts is always a good idea. Not only will it give you peace of mind in the short term, it means that in the long term you will be saving on interest payments, as well as having less outstanding debt in general.
Generally, you should look to pay off the debts with the highest interest rates first – this way, your total debt will stay lower. Credit card debts, in particular, should be addressed as quickly as possible, since they tend to be very expensive and carry no repayment charges.
Make mortgage overpayments
Most tracker mortgages will allow you to make overpayments each month, up to a certain point. According to The Telegraph, this tends to be around £500 extra per month or 10% of your mortgage balance per year (whichever is lower).
While the benefits may not be as immediate as a savings account or paying off debts, the long-term benefits could be much bigger than you think. Each overpayment you make reduces the balance on your mortgage, meaning you could finish paying your mortgage earlier, as well as saving a significant amount of interest.
Put it into a pension
Another long-term scheme that will offer its rewards later in life. With life expectancy rising all the time, saving for a pension is very important in order to guarantee peace of mind once you retire. Adding your mortgage savings to an existing pension account is likely to give a real boost to your total at retirement.
And of course, the earlier you can do this the better – a 25-year-old starting a pension, for example, should find themselves significantly better-off at retirement than a 45-year-old who does the same. That said, it applies to people of all ages that if you don’t have a pension, or you don’t think you are saving enough, adding your mortgage savings to your total should offer real benefits in the future.
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Tags: mortgage, mortgages, mortgage payments, lower, debts, mortgage, Pay into a savings account, Pay off other debts, Make mortgage overpayments, Put it into a pension