Homeownership can be an intimidating prospect for a first-time buyer. It is important to use caution when looking for a new place, especially with all of the risks associated with buying a house. Is it a new build? What’s the house structure like? Is it a fixer-upper? Or worse, is it a ‘lemon’?
Tell-tale signs of a house deemed a lemon could be anything from a faulty foundation to faulty electrics. These problems have nothing to do with age, but more to do with actual workmanship. The world has plenty of houses that were built many, many years ago and are still as solid as the day they were first built.
Buying a house is a big prospect, meaning you can never be too prepared, even if you’ve been planning for it for years. For people who have spent their lives renting, the idea of owning a home can seem intimidating, which is completely understandable; after all, it’s an area they’ve never entered into.
You could also see it as a new adventure or a new chapter in the life of you and/or your family because although it’s scary, buying a home is also incredibly exciting. There are so many new things to learn and do, from understanding what makes a good deal on a house to choosing your appliances. It’s not always easy, but there are ways you can make the process smoother and a little more fun.
With so many decisions to make, it’s important to have a guide to help you through each step of the way. The best place for a ‘good guide’ is likely to be an experienced estate agent and a reputable lender, which brings us to the money side of moving house – it’s never cheap.
Mortgage bond repayments are stressful and if you think about the amount of time and money you will pay back over the years, then it’s easy to get discouraged. However, the fact of the matter is that most of us rely on mortgage bonds to be able to occupy our homes and raise our families.
The good news is, there are ways to help you pay your mortgage off quicker…
1. Biweekly payments
If you’re going to choose this option, then you’ll need to divide your monthly mortgage payment amount in half and make a payment every fortnight. By the time the end of the year rolls around, you’ll have made a total of 13 monthly payments as opposed to 12. By electing to go this route, you can lower a typical 30-year loan by 6 years.
Naturally interest rates have to be taken into account, but this method can help you to pay off your house quicker. It needs to be noted that not every lender will make allowances for biweekly payments, meaning it’s best to speak to your lender about whether they would allow this before deciding this is the best option for you.
2. Make provisions for an extra payment each year
It’s never easy having to part with your money, regardless of the reason, and for some people a monthly instalment is painful enough. So, if you’re not keen on making biweekly payments, then you can achieve similar results by making provisions to make an additional annual payment.
You may not even necessarily need to save, but instead could benefit from a tax refund and use it to make the extra payment. You could even try investing in real estate agencies listed on the LSE (London Stock Exchange) such as British Land Company PLC or Sergo PLC.
The start-up capital with many UK brokers is quite affordable and the potential windfall from investing could mean shaving off a massive piece of what is still owed on your mortgage.
3. Set aside money each month for the principal
If making an additional annual payment is beyond your means, then instead opt to make an extra payment each month that you can afford. Something as little as an extra £100 can make a decent dent in the long run.
It is advisable to get in touch with your lender and find out about the extent of the impact made by a monthly bill that consistently exceeds the required amount. In order for your mortgage to be lowered, the extra amount must be applied to the principal.
Plus, this strategy doesn’t mean you’ll have to make drastic changes to your lifestyle. A simple reassessment of your monthly outgoings can help you to see where there might be some excess cash lying around. For example, instead of eating out twice a week, cut it down to once a week.
4. Consider recasting your mortgage
Recasting your mortgage means adding a lump sum towards the principal balance in order to reduce the monthly instalments. Typically, an inheritance or some kind of windfall is ideal for this type of strategy.
If you are capable of making a lump sum payment, the terms of your mortgage will be adjusted so that the number of remaining months stays the same, while the instalments themselves are lessened. Once again it needs to be noted that not all lenders are keen on the idea of recasting a mortgage and some might have specific requirements, such as the minimum lump sum acceptable for the process.
5. Refinance your mortgage
There’s a common misconception that refinancing a mortgage could mean higher monthly instalments. However, the increase is often not as high as you may expect. By refinancing, you can get a lower interest rate and incur some much-needed savings.
Also, you can refinance to a shorter period to reduce the debt quicker. For instance, you could half the typical 30 year period to a 15 year one and while you will experience higher monthly payments, your savings over the length of the loan can be significant.
6. Opt for a flexible-term mortgage
The most common mortgage repayment periods are 15 and 30 years, but they’re not all that you can choose from. Perhaps you can afford a shorter repayment period? This all forms part of the refinance option and includes finding a lender that provides flexible-term mortgages. A shorter-term means that the interest you’ll accumulate over the life of the loan will be less.
7. Opt for an adjustable-rate mortgage
Adjustable-rate mortgages can seem questionable and even considered a last option. For instance, when the housing market collapsed in 2008, those who had opted for adjustable-rate mortgages faced foreclosures, with lenders forcing them to sell their property.
The basic structure is that the loan starts with a low-interest rate that eventually gets higher after a certain period. This type of mortgage isn’t for everyone and is recommended for financially stable households or for those families that know they’ll move somewhere else in the near future.
A house is a big investment and one that should be taken seriously. In fact, it’s probably the most important financial decision you’ll ever make. Before you purchase a new house, there are some important things to consider.
First, figure out how much money you can realistically put toward the deposit on your home. Second, create a budget for the monthly mortgage payment so you know how much income will be going toward housing each month. Third, determine if you want to own or rent your home in 5 years’ time and what interest rates might look like during that time period.
The seven strategies we have mentioned can certainly help you with money-saving and in your ability to pay off your mortgage much quicker. Remember, before deciding which method you want to use to pay off your mortgage quicker, it’s also a good idea to get in touch with a professional financial advisor, or mortgage advisor.