People can save thousands of pounds and reduce the impact of the credit crunch by dodging poor value mortgage deals, says Which? Money.
Its survey of more than 6,000 people found that 4 in 10 (43%) are worried they will be worse off this year as a result of the credit crunch.
Many lenders have withdrawn their cheapest mortgage deals, and some have announced that they will no longer lend to new customers.
However, there are still steps people can take to reduce their mortgage costs.
To help homeowners and buyers, Which? Money has 15 tips, including:
- compare the total cost of each deal – arrangement fees have increased significantly so it’s important to compare the total cost of the deal, not just the interest rate
- reduce the ‘loan-to-value’ ratio – many lenders have withdrawn their cheapest deals since the credit crunch, with the best interest rates often available to people with a bigger deposit, who borrow up to 75% of the property’s value
- don’t add fees to the loan – it might be tempting to avoid paying fees up front, but it can add hundreds of pounds in extra interest over the term of the mortgage
- don’t pay the standard variable rate – remortgage at the end of the initial deal as the standard variable rate is usually around 2% higher and can add thousands of pounds in interest
- overpay if you can – many mortgages allow overpayments of up to 10% a year without charge and paying off the loan quicker can save thousands of pounds in interest; reducing the mortgage term is another way to do this.
Which? Money Editor Martyn Hocking said: ‘We’ve all heard about the credit crunch in the news, but people taking out a new mortgage deal are now seeing its impact.
‘Mortgage payments are often your largest monthly expense, so understandably some people are worried about them going up.
‘There are a few simple steps you can take to reduce the impact. Most importantly, shop around when you take out a new deal, and use an independent mortgage adviser to make sure you get the best mortgage you can.’