We regularly check our investments but few of us take the same care with our mortgage and yet, it is likely the biggest debt most of us will ever have on our lives.
In this brief guide we will look at what mortgage management entails and why we should manage our mortgages.
What is mortgage management?
Mortgage management essentially allows you to constantly be on the lookout on ways to save on the interest you pay on your mortgage through automated technology. It might involve switching your mortgage at the end of a fixed mortgage term to a cheaper mortgage or letting you know when to overpay on your mortgage, by how much and how much you will save in interest by overpaying.
Mortgage management platforms also monitor your equity in your home and will pre-qualify you for new cheaper mortgages based on the new equity in your home which can be caused by the value of your home rising or you paying down your current mortgage.
The benefits of mortgage management
Mortgage management takes the work away from borrowers. There will be no need to constantly check on your mortgage health and verify when your fixed term ends or if you can switch to a cheaper mortgage as this will be done for you.
Mortgage management will enable you to prepare for possible interest rate rises if you are on a variable rate mortgage by giving you advance warning and sourcing out a suitable fixed rate mortgage for you to switch to.
Most importantly mortgage management allows you to stress test your current affordability for your mortgage. If mortgage rates rose 0.5% will you be able to afford your monthly mortgage repayments based on your current income and expenditure?
Why is reviewing your mortgage hard?
To review your mortgage effectively you will have to search the market every week to see if there are better mortgage deals available for you to switch to.
You will also have to monitor the equity in your home to see if you could possible get a better mortgage as you now have a lower mortgage LTV.
If you don't have your own mortgage sourcing software this means you will have to go to a comparison website to search mortgage deals but these deals don't actually matter much to you because their availability isn't what is relevant but rather your eligibility for them.
To check your eligibility for mortgage products you will have to go to the mortgage lenders directly. This doesn't provide much value in the short and long term.
It requires so much time and offers so little reward immediately.
For you to review your mortgage effectively you will also need to be able to review mortgage interest rates regularly as well as the bank of England base rate which affects most mortgage rates.
This whole process does not need to be done by you but rather by an adequate mortgage management platform.Its simple and free.
If you don't manage your mortgage effectively you could end up paying thousands of pounds over what you should pay.
You can always use a mortgage calculator to see how much you could save by switching but plugging into a mortgage management platform will bring you more long term benefits.
How much can mortgage management save you?
Mortgage management can either save you time or money and in most cases both.
You can decide to keep your monthly mortgage payments the same and move to a cheaper mortgage which will take less time to pay off or you can simply reduce your monthly payments by switching to a cheaper interest mortgage and keep the same mortgage term.
Regardless of how you approach it mortgage management has a lot of savings.
Mortgage management doesn’t just take into account the deals on the market but rather the total cost of switching your mortgage including the mortgage fees.
Your current lender might charge you an early repayment fee for settling your mortgage account early or a fee for overpaying your mortgage. In most cases your mortgage lender will allow you overpay the mortgage by up to 10% of the outstanding mortgage per year.
Your new mortgage lender might also charge you fees including:
This might be news to you but it won't be to a mortgage management platform.
Your Mortgage affordability
If you are doing the mortgage review yourself you might not have thought about your mortgage eligibility but this is very important.
When considering a new mortgage your mortgage lender will look into your expenses, your income and any future plans you have to see how much you could potentially afford.
The mortgage lender will first use an income multiple of 4.5 to see what the maximum mortgage they can give you is but then they will do a more in depth look into your finances. It is very possible your mortgage affordability will have changed since you got your initial mortgage. If this is the case you should look to improve your mortgage affordability.
Mortgage lenders will look to stress your affordability to see if you will be able to afford your monthly mortgage repayments if its interest rates rise.
You should also look to get your mortgage documents ready including:
- Tax returns
- Bank statements
- Pension and investment documents
Switching your mortgage yourself
You can switch your mortgage yourself but you will have to carry out the mortgage research yourself and choose the product you think is best for you.
You will need to give the mortgage lender instructions such as the:
- The value of your home
- The mortgage you want
- How much you are borrowing and
- How long you want the mortgage to last
This is known as an execution-only mortgage so the lender will write to you confirming you haven’t had advice or an assessment of whether the new mortgage is suitable for you, which you will need to confirm.