Most people end up paying far more for their mortgage than they really should. In the first place there seems to be a kind of universal rule that the mortgage term should last over 25 years – the idea of this is obviously to keep the monthly expenditure to a minimum. But have you ever considered how much you could save if you reduced the term to only 20 years.

The amount you save will depend on which type of mortgage you have. For instance, on an endowment mortgage where you only pay interest on the loan, the amount of interest paid is the same each month regardless of the term of the mortgage. However, the endowment policy, if taken over 20 years instead of 25 years can have a surprisingly small increase in monthly payment. The total amount put into the endowment policy can therefore end up being considerably smaller – the extra monthly amount totally much less than the extra five years worth at the lower monthly rate.

Where the savings really start to accrue though is with the repayment mortgage. Because interest rates are always subject to variations, the example shown below uses 10% for the sake of simplicity. Naturally, with interest rates being lower that this the total amounts of expenditure and savings will be less. Again, for the sake of simplicity, Miras is not considered.

The repayments on a 10% (APR) £50,000 mortgage over 25 years would be £454 per month. At the end of 25 years you will have paid a total of £136,200. The total interest being £86,200.

Reduce the term of the mortgage from 25 to 20 years an your monthly installments only increase to £482 (only £28 per month more). The total repaid over the 20-year period would then be £115,680. The total interest being £65,680 – a saving of £20,520 and the whole thing is settled five years earlier!

A further reduction to 15 years and the monthly installment would be £537 with the total repaid being £96,660. Total interest paid now coming down to £46,660. The mortgage being settled 10 years earlier and costing £39,540 less than the 25-year mortgage.

There are many ways of saving money on a mortgage. The most obvious one being to find one with the lowest possible rate of interest. Be careful here though for ‘low-start’ mortgages, some of which can cost a lot more in the long term.

The best plan when looking for a mortgage is to consult a truly independent financial advisor – one you can trust not to sell you the product, which simply brings him the highest commission. There is a company called CLIENT FIRST who specialise in finding the best possible deal for their clients.

You can contact them by letter (FREEPOST), telephone (The call is FREE) or fax. They will give you the best advice you can get and there will be no ‘hard-sell’ techniques used. Client First Ltd FREEPOST (PY86) Ivybridge PL21 9BRTelephone (Free): 0500 575 500Or, Fax: 01752 894 308In addition to the free advice and service of finding the best possible deal for Mortgages and Remortgages Client First also deal with the following financial products:

  • Endowments
  • Life Cover
  • Peps/Tessas/Savings Plans
  • Pensions
  • Investments
  • Income Protection
  • Critical Illness Cover
  • Medical Insurance
  • School Fees
  • Full Financial/Tax Planning

A typical example of the kind of savings Client First are able to find: A man, on the advice of his Building Society, took out a life assurance policy costing £89.46 per month, for £74,500 worth of cover over 25 years.

Fifteen months later, he changed to a different Insurance Company and is now paying £51.13 per month. Savings over the period of the policy are a very substantial £11,499!

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