You’ve no doubt heard about interest rates rising. But what does it mean for your mortgage and future payments?
Since the 2008 financial crisis, interest rates have remained low. In the last decade, the Bank of England (BoE) has increased interest rates twice. The base rate is now 0.75%. While still considered low, the modest 0.25% increase means interest rates are the highest they’ve been in nearly 10 years.
It might seem like a very small increase. But when you consider the size of an average mortgage, it’s a cost that can mount up.
As the economy recovers, it’s anticipated that further interest rates are on the horizon too.
What does the rate rise mean for your current mortgage?
If you’re currently paying a mortgage, you may find that your monthly payments increase.
Fixed rate mortgage: Your mortgage is fixed for a defined period of time. Therefore, you won’t immediately be affected by the interest rate rise. However, when you come to the end of your current deal you may find it difficult to find a mortgage product that matches your current interest rate.
Variable or tracker rate mortgage: Your monthly repayments are likely to be affected. If you have a tracker mortgage, which is linked to the BoE base rate, your mortgage will rise automatically. If you have a variable mortgage it will be linked to the base rate set by your provider, which will typically increase alongside the BoE rate.
With more rate rises expected, your repayments will likely continue to increase over the coming years if you remain on a variable or tracker rate mortgage.
Why consider remortgaging now?
There are lots of reasons you might be switching your current mortgage deal; from house prices in your area increasing, which means you could potentially access more competitive mortgage products, to your current mortgage coming to an end.
But possible further interest rate rises give you another reason. As interest rates are expected to continue increasing, you have an opportunity to set a fixed monthly payment while they’re still low. If you’re worried about how your finances would cope with unexpected increases, swapping to a fixed rate may be a good option.
Fixed rate mortgages give you security. You know that your monthly bill will remain the same for a defined period of time; usually two, three, five or 10 years.
Fixed rate mortgages will usually have a higher interest rate than their variable counterparts available. However, you are protected from rises. As a result, you may pay more to begin with but be better off in the long run.
Remember, it’s not just the interest rate that you need to consider when remortgaging. Other areas, such as over-payment options and fees, should play a role in your decision too.
Four steps to take when you decide to remortgage
If the rate rise has prompted you to look for a new mortgage deal, there are some steps you should take before applying:
1. Check your credit score: Just like when you’re applying for your first mortgage, your credit score is important. If you score is considered good, you’re far more likely to access the best rates available. Checking your score before applying means you can take steps to improve it where necessary and correct mistakes on your report.
2. Review what you owe: If you’re not sure exactly how much you still owe on your current mortgage, make sure you check. You don’t want to end up with a shortfall. Your current mortgage provider can provide you with all the details you need.
3. Research property value: If your mortgage deal is coming to an end, it’s likely the value of your property has increased; particularly if you’ve invested money updating it. If the value has increased, you may find that you’re now able to access better interest rates.
4. Organise paperwork: The remortgaging process can be lengthy. Organising all the paperwork you may need beforehand can minimise delays. The paperwork needed is likely to include ID documents, three months of bank statements, and recent pay slips.
If you’re coming to the end of your current mortgage, it can be worthwhile to start shopping around now. Many providers will offer you a rate that’s guaranteed for up to three months, with a few allowing you to ‘lock in’ a rate for six months.
If now is the time you’re thinking about remortgaging, come and talk to us. We can help you understand whether a fixed, variable or tracker mortgage is best suited to your lifestyle.
Your home may be repossessed if you do not keep up repayments on your mortgage.