22 September 2014
Do your research to help manage your mortgage
Julie-Ann Haines, Principality Building Society’s customer director, talks about the importance of managing your mortgage.
A mortgage is the single largest financial commitment that most people will undertake in their lives. These loans bridge the gulf between our deposits and the cost of our desired properties and are essential in helping us get a foothold on the property ladder.
In the same way that properties vary in size, location and type, so too do mortgages. The mortgage market is awash with a variety of products designed to cater for the differing circumstances of homebuyers in Wales.
There’s no one-size-fits-all mortgage product and you can research what option is best for you or find a mortgage advisor or specialist broker to find the most suitable product for your circumstances. This help can be invaluable when securing a mortgage but what happens once the ink has dried on the mortgage approval letter and the funds have been transferred? From this point forward the mortgage becomes your responsibility and it’s important you know how to manage this loan.
Contrary to what some people believe, a mortgage isn’t a 20, 25 or 30 year product that should be left untouched. The reality is that interest rates fluctuate, personal circumstances change and mortgage products evolve meaning those who constantly evaluate their mortgage requirements are better equipped to ensure they’re on the right product for them.
While consumers have become adept at reviewing their monthly outgoings (phone bills, energy tariffs, insurances etc.) and switching if a better deal is available elsewhere, mortgages are often overlooked as part of this process. The reality is that being on the wrong product can be an unnecessarily expensive commitment so reviewing your mortgage needs can save you money.
Effective mortgage management is about understanding the nuts and bolts of your current product and assessing your short, medium and long-term financial situation to ensure this product remains in-line with your requirements.
Knowledge is the greatest tool in the homeowner’s armoury so checking the terms and conditions of your mortgage thoroughly at the outset is a good place to start. Thereafter, making a note of the monthly interest rate and marking out in your diary the date that any discount or bonus may end is an important step to ensuring you aren’t caught out by a steep increase in your monthly repayment.
If you do find that your monthly repayments are due to increase, it is often the case that re-mortgaging to a different product could protect you from additional expense. Re-mortgaging is the process of switching your mortgage to another provider or product. While it may seem daunting given the sums involved, re-mortgaging is an effective and common tactic in managing monthly outgoings.
Overpaying on a mortgage is also popular among homeowners. Although finances may not always mean it is possible, there might well come a time where the arrival of a new job or an unexpected windfall means you are in a position to pay a little bit extra towards your mortgage each month.
Many products do allow customers to overpay by a set amount each year without charging a penalty for the privilege and this is an effective way of reducing your mortgage. Where regular monthly payments are a mix of interest and capital, every penny of an overpayment goes straight towards paying off the amount you borrowed.
Most products do, however, have a limit on how much can be repaid each year without penalty and knowing this amount is another important part of managing your mortgage.
Of course, not everyone will be in a position to overpay each month and many will be on a product that perfectly suits their circumstances so will have no current need to re-mortgage. The only way to truly be confident that you’re managing your mortgage effectively, however, is to know your product, know your options and make a point of re-assessing your circumstances at regular intervals.
As the biggest outgoing most of us will ever have in our lives, acquiring the knowledge required to adjust our mortgage terms when a change is needed most can give us the power we need to make the choices that suit.