18 November 2015
Know your mortgage options in good times and bad
Julie-Ann Haines of Principality Building Society outlines the importance of consumers knowing their mortgage options if their circumstances change.
Many of us are guilty of living in the present when it comes to our financial affairs; living day to (pay) day without planning for a change in circumstances – good or otherwise. But life has a habit of placing unexpected curveballs in our paths when you least expect it so it’s important that you familiarise yourself with all of the financial options available to you should you ever encounter a change in circumstance.
The key to balancing a household budget is to stay on top of your financial affairs, regularly assessing income versus outgoings and developing a knowledge of the various financial tools at your disposal. As most people’s biggest monthly financial outlay, understanding all of the mortgaging options available is a sensible place to start.
When considering a new mortgage, homeowners can often focus more on the current cost rather than the ‘what-ifs’ or other eventualities. While there are some circumstances for which preparation simply isn’t possible, familiarising yourself with the financial tools at your disposal can go some way to ensuring you’re as well-equipped as possible to deal with the good and bad things that life throws your way.
When you need a helping hand
From time to time all of us will need some extra support. Perhaps you’re someone who’s used to having spare money in your account at the end of each month after paying your mortgage but now a new addition to the family has meant your finances are more stretched and you’re looking for some relief. Similarly, you could be someone who’s in a stable job that hasn’t planned for the unfortunate event that you are made redundant.
It is always good to speak to a mortgage advisor to ensure you are getting the best option for your circumstances as there are a number of routes available to you. One route might be to re-mortgage and extend the period of your loan. For anyone who’s had a mortgage for a few years, it may well be possible to speak with your mortgage provider to extend the period of the mortgage and spread the cost of the remaining payments across a greater length of time, therefore reducing monthly outlay.
While not suitable for everyone, extending a loan term can also be useful for someone who’s been made redundant and needs to reduce the burden of a mortgage on their monthly outgoings. You could also find out whether your mortgage provider offers payment holidays to cover unexpected situations you might encounter.
However, it is always useful to have Mortgage Payment Protection Insurance, which is designed to cover your mortgage payments if you’re unable to work due to accident, sickness or unemployment. Depending on the size of your monthly premium, MPPI pays out a set amount each month to help towards, or pay in full, your mortgage payments and ease the burden of being out of work.
In good times
Of course, there are also those unexpected events that can have a positive effect on our finances. A financial windfall or a high-paying promotion can come out of the blue and can provide a welcomed boost to the bank balance.
But have you taken the time to consider how you’d best utilise such a windfall, or what you’d do with any surplus cash in your account each month?
For those fortunate enough to have received a financial windfall, looking at repaying or overpaying can be a hugely effective option. Overpaying your monthly mortgage payments – while not a luxury many get to enjoy – can be an effective way of chipping away at the existing balance and reducing the period of the loan.
While some mortgages have limits or small penalties for overpayments, it’s wise to familiarise yourself with the terms and conditions of your mortgage and see what options are available to you. You may be able to clear the loan or pay a lump sum which could lower your monthly repayments in the long run in case of an adverse change to your circumstances in the future.
Similarly, your children may have flown the nest and have begun their own careers so you’re looking to free up some money to enjoy your retirement without taking out further loans. For you, downsizing your property to claw back some equity could be an effective way of freeing up some money for those activities you’ve been planning during your working life.
Options are available
Despite what many people think, a mortgage isn’t a fixed, lifetime commitment that can’t be changed to suit your circumstances. Often, tinkering around the edges of your financial commitments can have a big impact on disposable income. The product you initially took out might not suit you in years to come - that’s why knowing your options is so important.
The key to responsible mortgage management is to be proactive and not reactive. While you might not expect the unexpected, arming yourself with basic knowledge of your options can help you adopt a front-footed response to make sure your finances stay on track.