Do you know how much your mortgage is costing you?

Do you know how much your mortgage is costing you?

For many homeowners, knowing the ins and outs of their mortgage repayments becomes second nature.

Surprisingly, though, around a third of Brits with mortgages don't know what interest rate they're currently on.

A recent study, carried out by YouGov on behalf of mortgage broker habito, explored homeowners' mortgage knowledge.

It found that as well as many people not knowing their interest rate, one in eight don't know if they have an interest only mortgage, while one in ten aren't sure if theirs is fixed or variable rate.

Almost 10% of participants said they don't know how long their mortgage term is, while one in 20 can't name their lender.

Some of these figures are quite worrying, considering that a mortgage is likely to be one of the biggest financial commitments most people make during their lifetime.

For people looking to buy or sell a property, understanding the mortgage is a vital part of the process.

In preparation, reading up on interest rates, mortgage terms and lending criteria could be beneficial in the long-run.

What's more, as we see more initiatives like Barclays' 100% mortgage popping up, it's important for borrowers to shop around and look for the best deal.

Habito's founder, Daniel Hegarty, urges borrowers to remain wary of online mortgage calculators as although they can be useful, they don't always give a 'realistic breakdown' of what is affordable.

He adds that although price comparison websites are now the first stop for many consumers, not all deals can be found on these platforms and so it's often best to check directly with lenders.

 

Expert advice – should you pay off your mortgage?

With interest rates still at a record low, Paula Higgins, chief executive of the HomeOwners Alliance, advises existing homeowners on what they need to consider before paying off some or all of their mortgage.

She says owner occupiers should ask themselves the following seven questions to help determine whether or not paying off their mortgage is the right move for them...

 

1. What is the interest rate on your mortgage, and how does it compare to the interest you can get on a savings account?

2. Are there any penalties for repaying the mortgage early?

3. Are you expecting any windfalls, such as selling a business, or inheritance?

4. Do you have alternative investments that you want to make?

5. How much money do you need for a rainy day fund?

6. What costs are you expecting? For example, if you have years’ of school fees ahead of you, you might want to keep a large ring-fenced sum aside rather than paying off the mortgage.

7. Are you expecting a decrease in income? In which case, you might want to keep extra savings to tide you over

 

What's the main reason to pay off a mortgage early?

“It will probably leave you better off in the long run,” says Higgins. “Generally, if you have debts, the best thing to do with your savings is pay off those debts, because with rare exceptions, mortgage rates are higher than savings rates.”

“Being mortgage-free can make it easier to downsize in other ways – such as going part time – and usually makes it cheaper and easier to buy and sell your home. Generally, a smaller mortgage gives you greater freedom and security,” she adds.

 

What's the biggest reason not to pay off my mortgage early?

“Opportunity cost,” she explains. “The money in your savings account is yours to do what you like with.”

“Once you have paid off the mortgage, it will be difficult to get the money back again, unless you go through the hassle and expense of taking out a new mortgage, which might be difficult since lenders have been tightening their conditions.”