Interest rates dropped to record levels during the coronavirus pandemic. However with the country on the path to recovery, it was always unlikely that they would stay that way forever.
Mortgage rates have been surging dramatically over the last few months, meaning that many homeowners will have been paying higher payments than in recent years.
The average two-year fixed rate deal is currently at its highest level in nine years, according to Moneyfacts. With further rate interest rate rises planned in the not too distant future, this is going to hit many homeowners deep in the pocket.
What is happening with interest rates?
In an attempt to curb rising inflation, the Bank of England has been raising interest rates. The base rate rose from 0.1 percent late last year to 1.25 percent and is likely to increase again very soon. Experts predict that the base rate will be up to 2.5 percent by the end of 2023.
Mortgage lenders pass these rises on to customers by raising their own mortgage rates – these hikes could cost homeowners significantly.
For example, let’s look at a borrower with a £200,000 loan. If they took out a two-year fixed mortgage back in the Summer of 2020 on the best available deal at the time, they would be paying interest rates of 1.09%. When they come to remortgage, the best equivalent rate currently is 2.79%. This would push up their repayments by £1,152 a year.
Fix now to avoid future interest rate hikes
Homeowners are being urged to review their mortgages and if possible, fix now to protect themselves from future interest rate increases.
Many borrowers are already on fixed-rate deals, so have so far felt protected from the interest rate rises. However, they could be in for a shock when their deal comes to an end.
If your current deal is ending, it’s wise to plan ahead. Start researching mortgage deals a few months before your current deal ends so you can lock into the cheapest deal. If you don’t have a deal in place when your current one ends, you’ll end up on the lender’s Standard Variable Rate which, as it implies, will be affected by any rises in the interest rate. Most mortgage offers are valid for six months so even if your current deal doesn’t end until the new year, you could potentially lock yourself into a deal now and avoid any hikes in the next few months.
Switching deals early – are there pitfalls?
If you are already locked into a deal, but worried what the interest rates will have gone up to by the time it ends, then consider switching early.
Most fixed rate deals will incur early repayment charges, which in the early stages of a mortgage deal are typically too high to make it worth your while.
However, if you are not far off the end of your deal, then why not crunch some numbers. If you can make significant monthly savings that negate the redemption fee, then it could be worth getting out of the deal early.
Other ways to save money on your mortgage and secure a low interest rate
Reducing your overall mortgage debt can make great financial sense. If you are currently on a low interest rate – and can afford to do so – you should consider overpaying. Borrowers who overpay can help to cut down the balance more quickly, which will leave them with a smaller mortgage when their current deal ends. This could see them eligible for a better deal. Overpaying can also help you to reduce the overall term of your mortgage. Paying the loan off sooner could save thousands in interest payments.
How to remortgage
With different options to consider, choosing when and how to remortgage can be a minefield.
Speaking to a mortgage broker can help you to decide which is the best option for your particular circumstances. A broker will have access to exclusive deals, be able to look at your financial situation and recommend the best deals that you are eligible for.
Acting now could help you to avoid the interest rates rises and paying over the odds on your mortgage. Speak to So Smart Money to find out how to get the best deals around today.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE