5 Essential Tips for Coping with Rising Mortgage Costs

Mortgage payment strategies are becoming essential as UK homeowners look to reduce monthly mortgage costs; here’s expert advice tailored for you. Interest rates may have peaked at 5.25% and have held steady since August, but it could be some time before they start to fall. This poses challenges for the 1.6 million UK homeowners whose fixed-rate deals are set to expire by the end of December 2024. Rising costs are inevitable when they remortgage. Meanwhile, those on tracker and variable rate deals have already felt the impact of rising rates. Here are five practical tips, with insights from leading UK mortgage experts, to help you manage these increased costs:

1. Overpay Now if Possible
Make the most of your current low fixed-rate deal by paying down your mortgage early:

• Save on Interest: Overpaying now can save you thousands in interest and reduce your mortgage term.
• Emergency Fund: Keep some cash aside as a rainy day fund; once it’s used to pay off the mortgage, it’s not easily accessible.
• High-Interest Savings: Consider building up your savings in a high-interest account to help offset future costs.

2. Switch to Interest-Only
Switching to an interest-only mortgage can reduce your monthly payments significantly:

• Lower Monthly Costs: Pay only the interest, not the principal, making payments more affordable in the short term.
• Short-Term Solution: Use this as a temporary fix, as the full balance will still need to be repaid at the end of the mortgage term.
• Eligibility Requirements: Your income and property equity will determine if you qualify.

3. Downsize Your Home
For some, selling up and moving to a smaller, more affordable property could be a smart move:

• Reduce or Pay Off Mortgage: Downsizing can help you pay off your existing mortgage or significantly reduce it.
• Ideal for Empty Nesters: Particularly beneficial for older homeowners whose children have moved out.
• Seek Independent Advice: It’s essential to consult with a financial advisor to explore your downsizing options.

4. Extend Your Mortgage Term
Extending the length of your mortgage can lower your monthly payments but be mindful of the long-term costs:

• Lower Monthly Repayments: Spreading payments over 30 or even 40 years can make your mortgage more manageable.
• Higher Overall Cost: Extending the term will increase the total interest paid over the life of the mortgage.
• Review Regularly: Reassess your situation periodically to reduce the term when your financial circumstances improve.

5. Make Money Out of Your Property
Your home can be an income-generating asset through creative uses:

• Rent Out Space: Use platforms like Airbnb, JustPark, or take in a lodger to earn extra cash.
• Tax Benefits: The UK government’s rent-a-room scheme lets you earn up to £7,500 a year tax-free.
• Considerations: Be aware of any tax implications or lease restrictions before renting out parts of your property.

UK Mortgage Calculator – Calculate Your Monthly Mortgage Repayments and Plan Your Budget.

This tool allows users to enter their mortgage amount, interest rate, and repayment term to calculate their monthly payments, helping them better understand their financial commitments.

For more expert tips and updates on the UK housing market, visit EyeOnLondon for insights tailored to homeowners navigating these challenging times.