How to Save Money on Your Mortgage as the Cost of Living Continues
Written on 9 March 2025 by
As the cost of living continues to rise and mortgage rates fluctuate, reviewing your largest monthly outgoing has never been more essential. Failing to reassess your mortgage deal could prove costly in the long run. For most homeowners, their mortgage payment is their most significant financial commitment, and ensuring that it remains manageable can provide long-term financial stability.
From product fees and remortgaging to EPC ratings and overpayments, there are numerous ways to optimise your mortgage and reduce overall costs.
Understanding Product Fees
When securing a mortgage, whether for a new property or a remortgage, you will often encounter product fees. Paying a product fee can enable access to a lower interest rate, resulting in lower monthly payments and overall savings. However, deciding whether to pay this fee upfront or add it to the mortgage requires careful consideration.
For purchases, adding the fee to the mortgage provides security in case the property transaction falls through, as upfront fees are not always refundable. Conversely, remortgagers who pay the fee upfront can avoid interest on the added amount, potentially reducing long-term costs. Reviewing these options before applying for a mortgage ensures that the choice aligns with your financial goals.
Making Overpayments
Many fixed-rate mortgages allow annual overpayments of up to 10% of the outstanding balance. This can significantly shorten the mortgage term and reduce interest costs. Homeowners currently benefiting from lower fixed rates may find it advantageous to make overpayments before moving onto a higher rate at the end of their term. Utilising this allowance effectively can yield substantial savings over the years.
Extending or Shortening Your Mortgage Term
Extending the mortgage term can lower monthly payments and improve short-term affordability. However, this also means paying more interest over the life of the loan. Conversely, shortening the term increases monthly payments but results in significant interest savings. First-time buyers often opt for longer terms due to affordability constraints, with the option to shorten the term when their financial situation improves. Those nearing retirement may have fewer options for extending their term and may need to explore later-life lending solutions such as Retirement Interest-Only (RIO) mortgages.
EPC Ratings and Mortgage Rates
Energy efficiency is an increasingly influential factor in mortgage pricing. Lenders often offer preferential rates for properties with an EPC rating of C or above. Since EPC certificates are valid for 10 years, homeowners who have made energy-efficient improvements may benefit from obtaining an updated EPC before remortgaging. Not only can an improved EPC rating increase property value, but it can also provide access to better mortgage products.
Avoiding Early Repayment Charges (ERCs)
For homeowners needing additional borrowing, the first step is to check with their existing lender to see if a further advance is available. If not, remortgaging to a new lender may be necessary, but this could involve ERCs if the fixed term has not yet ended. In some cases, taking out a second charge mortgage could be a more cost-effective solution, allowing borrowers to retain their current rate while raising additional funds separately.
If additional borrowing is for home improvements, a second charge mortgage could increase the property's value, improving loan-to-value ratios and securing better remortgage rates in the future.
Remortgaging for Savings
For those approaching the end of their fixed rate, securing a remortgage deal early is crucial. Many lenders allow homeowners to secure a new rate up to six months in advance. This approach can provide protection against future rate rises while still allowing flexibility if better deals become available before the switch takes effect. Additionally, lenders have extended the product transfer window from three months to six, making it easier for existing borrowers to transition smoothly to a new rate.
Preventing Costly Chain Breaks
Property transactions can be complex, and chain breaks can derail even the most carefully planned moves. There are several financing options that can help mitigate this risk:
- Bridging Finance: A short-term solution that allows buyers to secure a new property before selling their existing one. While historically considered a last resort, bridging finance has gained popularity due to its speed and flexibility.
- Let to Buy: This involves converting an existing residential property into a buy-to-let and using the equity to fund a new purchase. This allows homeowners to retain their original property for rental income while securing a new home without breaking the chain.
Remortgaging vs Product Transfers
Historically, lenders offered better rates to new customers than to existing ones, making remortgaging the more attractive option. However, this has changed in recent years, with lenders now offering the same rates to both new and existing customers. While product transfers offer convenience, they should not be accepted without first reviewing the wider market. Comparing all available options ensures the most cost-effective decision is made at each renewal point.
Saving Money on Your Mortgage as the Cost of Living Continues Conclusion
With the rising cost of living, reviewing your mortgage at key milestones is essential to maximising savings and maintaining financial stability. Whether through remortgaging, making overpayments, optimising loan terms, or improving EPC ratings, proactive mortgage management can lead to substantial savings.
For personalised mortgage advice and assistance in securing the best deal, contact our expert mortgage advisers at 0808 303 5528 or enquire online today.
Category:Nicholas Mendes
