There are smart ways to manage a mortgage … and there are not so smart ways. Some people don't even see their mortgage as a loan! But your house isn't completely yours until you've paid off the loan, so you need to be sensible in dealing with your mortgage. Here are some smart ways to manage a mortgage and avoid financial disasters …
1. Prioritise It
One of the most important ways to manage a mortgage is to always make it a priority. There's a lot being risked if you don't pay it. Even one missed payment may affect your credit rating, and put you in a poor position when you want to remortgage for a better rate. Make sure that you have enough put by to cover a few payments, and always have insurance in case you lose your job.
If your mortgage lender allows it, then overpay your mortgage as often as possible. This makes a lot of sense because you will pay less in interest overall. Look at where you are spending money and divert as much as possible into overpaying. Spend less on clothes, going out or holidays; overpaying can reduce the length of your mortgage by quite a few years.
Review your mortgage annually. Look at your statement. How much have you paid off and what do you still owe? Can you get a better deal elsewhere? Always be aware of the status of your mortgage - it's a huge financial commitment, and you should know exactly where you stand as regards this commitment.
As with many financial products, lenders reserve the best mortgage deals for new customers. They don't worry about saving you money if you're already a customer. So the onus is on you to look for better deals. If you're coming to the end of a fixed-rate deal, always check to see if there are more favorable deals available to you.
5. Keep Your Lender Informed
Never stick your head in the sand if you're experiencing financial difficulties. Always inform your lender; they may be surprisingly helpful. It's not in their interests to have you default on your mortgage. Let things slide, and they won't be so accommodating. So as soon as you lose your job, or your income drops, see if they will reduce your monthly payments until your situation improves.
6. Interest Only … Not Interested
It may be tempting to switch to an interest-only mortgage if you're having financial problems. The monthly payments are lower, which appeals to people who live in expensive cities. These mortgages are now difficult to find in the UK, as so many people got into trouble with them. The problem is that you are doing nothing to pay off the capital. So what happens at the end of the term - what if your investment vehicle doesn't produce the desired sum?
7. Never Lie
Don't even be tempted to lie to your mortgage lender about your income, or take a loan intending to use it as a deposit. Your lender could call in your loan if it finds out. You could even face criminal charges. Absolutely not worth the risk.
Taking out a mortgage is the only way most people can afford to buy a home. It's a massive commitment, so you must be smart about how you handle it. Mistakes could be very costly. If you've bought a home, what was the worst mistake you made?