Cheap mortgages: how to cut your mortgage costs

We highlight some easy ways to save money on your mortgage.

Get a bigger deposit

The bigger your deposit, the lower the loan-to-value (LTV) of the mortgage you will need. And mortgages with a lower LTV have the lowest interest rates. 

Fixed-rate mortgage or tracker-rate mortgage?

If you go for a fixed-rate mortgage, then you know exactly what you will be paying each month.

Tracker mortgages are currently slightly higher, but as they're linked to the Base Rate of interest, you will benefit from predicted cuts in the coming months and years.

With the cheapest tracker mortgages currently offering a rate of around 4.2% compared to as low as 3.8% for fixed-rate mortgages, it means you'll likely need to see two Base Rate cuts before a tracker mortgage starts to pay off.

While it's hard to predict exactly when the Bank of England will reduce rates, but Deutsche Bank has forecast it will be cut three times  – from 4% to 3.25%  – by the second quarter of 2026. If that does prove correct, then a tracker mortgage may well be the better option, but obviously it does come with an element of risk.

With inflation becoming a concern once more, plus the wider global market uncertainty, rate cuts are by no means guaranteed.

Can you get a fee-free mortgage?

Most mortgages come with an arrangement fee of around £1,000. But there are plenty of deals out there now that don’t charge an arrangement fee at all, offering you the chance to save.

However, bear in mind that the interest rate on these fee-free mortgages will be higher, so you’ll have to do your own sums to see whether it costs you more in the long run.

Pay the mortgage fee up-front

If you do go for a mortgage with an arrangement fee, you’ll be given the option of paying it all up front or adding it to the mortgage balance.

Don’t do the latter if you can afford it – if you add it to the mortgage balance, you’ll have to pay interest on it, so it will cost you even more over the long run.

Shop around for your mortgage

Don’t just head to your local bank – high street banks are rarely the ones offering the most competitive rates – and you should instead do some research on a price comparison site. 

Speak to a broker

Some mortgage deals are only available through mortgage brokers. So have a chat with one and see if they have access to an even better deal than you can find on your own.

Extend your mortgage term…

Extending the term of your mortgage, for example from 25 to 30 years, will cut your monthly mortgage repayments, freeing up some extra cash every month if you are struggling.

However, as your mortgage lasts longer, you will end up paying far more in interest.

…or reduce your mortgage term

Cutting your mortgage term means you’ll have to spend more every month, but the loan will be cleared earlier, likely saving you thousands of pounds in interest charges.

Overpay on your mortgage

Another way to clear your mortgage early, and therefore save a fortune, is to overpay. Most mortgages allow you to pay 10% more than your usual monthly repayment without any additional charges.

Remortgage

When you reach the end of your initial fixed or tracker rate period, you’ll move onto your lender’s standard variable rate (SVR).

This is almost always more expensive. And what’s more, the rate can go up at any time, irrespective of what happens to Base Rate.

Don’t stand for it – remortgage to a different deal!

An offset mortgage could cut your mortgage costs

An offset mortgage is a clever loan that lets you use your savings to reduce the amount of your mortgage on which you are charged interest.

So let’s say that you have a £150,000 mortgage and £20,000 in savings. With an offset mortgage, you will only have to pay interest on £130,000 of that loan, significantly reducing your mortgage bill. You will have to give up earning interest on your savings though.

Improve the value of your home

If your home increases in value and you remortgage, you’ll qualify for a lower loan-to-value mortgage and hopefully save some cash on your repayments.

So help it along the way – do up your kitchen, convert your attic, or any of the other many things that you can do to beef up the value of your property.

Take in a lodger

Provided you're happy to do so, you could take in a lodger and put their rent towards your mortgage!

Thanks to the Government’s Rent a Room scheme, you can currently earn up to £7,500 in rental income each year without having to pay any tax.