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As a single income family, we have had to make some really key choices about what we spend our money on and how we structure our finances. We have tried to be savvy in how we spend our money and, for us, it’s been key to have some really key long term and medium term financial plans in place.
Like most, our biggest expenditure is our mortgage and it’s been the one thing that we have spent a lot of time working on to get to a stage where we can clearly see when it will be at a point when it’s not the biggest source of our outgoings. We remortgaged our property about seven months or so ago, and we managed to secure a really good deal. I thought I’d share the things we did to get a great deal.
Understand the loan to value ratio
This is the amount of money you wish to borrow compared to the value of your home. If your home is valued at £100,000 and you wish to borrow £60,000 then your loan to value (LTV) is 60% – ie you wish to borrow 60% of the value of your home. This is a really important figure to know as the lower the loan to value, the better the interest rate you can secure. Also knowing this figure means that when you get a range of possibly mortgage deals you can play around with the figures a little. We set up a simple spreadsheet which allowed is to play around with the LTV (if we borrowed a little more or less) and could see how the altered the monthly payments. Also understand the arrangement fees in mortgages – these can seem quite high initially but if you calculate the cost over the term of the mortgage then that’s when you can see the real cost of the arrangement fees and whilst arrangement fees might seem high, if they give you access to a lower interest rate then often it makes more sense to apply for a higher arrangement fee and lower interest rate rather than vice versa.
Start looking at deals early
Mortgages take time to process so make sure that you start looking at the deals that are out there early so you can keep an eye on whether interest rates are creeping up or going down. We kept an eye on the ‘best buy’ deals in things like the Sunday papers and did some basic figures on what those deals might mean for our monthly payments. By planning early too means that if your fixed deal is ending you won’t be caught out by going onto a higher variable rate which might mean higher payments.
Set up a spreadsheet
It really does pay to spend a bit of time setting up a simple spreadsheet. We did this and it simply had a range of amounts that we might wish to borrow (we were in the position of being able to pay a little extra cash off) and the number of years that we might want to take the mortgage for. We then could use websites to see what mortgage deals are currently available and add the relevant figures into the spreadsheet. We could then see the impact on our monthly payments of reducing the term of the mortgage or increasing the term. It’s amazing how affordable mortgages can be if you reduce the term by a year or two, and when you start analyzing the longer term savings it’s well worth trying to shave off even a year if you can. Having the information to your fingertips really helps when you’re having conversations with lenders.
Apply in good time
Make sure you apply in good time for your mortgage and have your paperwork well organized as there is a lot to submit to a new lender in terms of proving your finances. We had some slight hiccups in the process of remortgaging as we had to get indemnity insurance and that delayed things a little, but we managed to get it all completed as the deal for our previous mortgage expired.
