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How to Beat the Interest Rate Rise

Sunday, November 05, 2017

The Bank of England has raised the base rate to 0.5 per cent, but mortgage rates are still near record lows. Despite those cheap rates on offer, many homeowners are still paying more than they need to. This is typically because they take out a fixed-rate deal and when it ends, they don't remortgage and end up sitting on their lender's default standard variable rate. Most of these SVRs will now rise thanks to the base rate being lifted.

Standard variable rates can be as high as 12 per cent or as low as 2.5 per cent, but are usually just below 5 per cent. That compares to mortgage variable rates as low as 0.87 per cent and fixed rates starting from 1.32 per cent on offer to new borrowers now. While there might be a good reason not to lock into a new mortgage deal - you're planning to move house or you're on a super cheap lifetime tracker rate from 10 years ago - if you can remortgage and there's no reason not to. Just ask yourself a few questions and find a professional to help you get the best advice.

Q1. What's your mortgage and can you leave?
Check if you're on a fixed rate or variable rate and how far through the deal you are. Most people know what kind of mortgage they are on, ie a two-year fix, but they often don't know the exact rate, how long their deal period still has to go, or how long they have left to pay off their mortgage - is it 17 years, or are we down to 15? You need to know you current rate, when any deal period ends if you are still in it, and how long your remaining mortgage term is, ie how many years until it is cleared completely.

If you are out of an initial deal period and have moved on to a standard variable rate, then you should be free to leave.
If you are still in a deal period, you will most likely have to pay to get out. Most mortgage deals have early repayment charges, but these reduce the closer you get to the end of the deal, so work out how long you have left on your deal and what the early repayment charge is.

Q2. What kind of mortgage do you want?
Once you've decided you want to remortgage, think about what deal you want such as Fixed rates, variable tracker rates, repayment or interest only. 

Fixed rates tend to be more expensive than variable rates as they commit to fix your monthly payments for the duration of the deal. Variable tracker rates track another interest rate, most commonly the bank of England base rate, and so monthly payments can change within the duration of the deal.

Capital repayment mortgages allow you to pay the interest on the loan plus a bit of capital every month. This means you're paying off your mortgage and at the end of the term, there will be nothing left to pay. Interest-only loans have lower monthly repayments because you only repay the interest. At the end of the term you have to find a way to repay the full mortgage, typically using savings, investments or by selling the house.

You need to know which one of these that you are on and whether you want your new mortgage to be the same. 
Be warned, getting interest-only deals is considerably harder than in the days before the financial crisis, although it is still possible.

Q3. Do you want the same length mortgage or to extend the term?
A mortgage term is the length of its entire life. If you already have a mortgage and took it out over 25 years, say, five years ago, you have 20 years left on the term. When you remortgage you can choose to keep the term at 20 years or lengthen or shorten the term. 

On a  repayment mortgage, a longer term will mean each monthly payment is lower, as you are spreading paying it back over longer. This might make a bigger loan more affordable in the near future, but because the loan takes longer to repay, you will pay more interest overall. A shorter term means higher monthly payments but less interest payable overall as you'll pay off the loan sooner. If you are nearing retirement this can be a good thing. Some lenders have maximum age limits which may restrict how long a term you can get. Typically you need to be 75 or younger by the end of the mortgage term. 
Some lenders, particularly building societies, go above this. A broker will be able to help you identify one which is right for you.

If you would like to explore your options and get the best deal for you, call us today and arrange a free consultation with our recommended mortgage advisor who would be delighted to help you save money and get the best deal for your personal circumstances. 

Article taken in part from

Important Information
All property sales and the financial advice that surrounds them are as unique as the people engaging in the transaction. It is important to not make a decision without seeking professional advice. If you want to sell your home and are considering redecorating before marketing, speak to one of our Property Professionals to get the best advice for presenting your home for sale before making any investment.   




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