About 1.4 million homeowners have fixed-rate mortgages due this year, so if you’re one of them, you’re in for a shock.
Homebuyers and homeowners looking for a new loan today must pay an average of 6.19 percent for a fixed two-year period — more than double the average rate of 2.56 percent two years ago.
If you need to take out a mortgage again, don’t hang around – rates are rising and lenders are withdrawing their best deals and reprice them every few days.
To get the best rates, shop around. Don’t just stick with your existing lender. A good mortgage advisor can help with this.
At 5.82 percent, five-year fixes are currently cheaper than two-year deals. But think carefully before entering into a longer mortgage agreement. If rates start to fall in a year or so — as most financial experts predict — you could be stuck on higher rates longer than necessary.
Homebuyers and homeowners looking for a new loan today will have to pay an average of 6.19 percent on a two-year fix
If your deal expires in six months. . .
Start your search for a new mortgage offer now. You can usually sign up for a new deal six months before it starts.
In the unlikely event that rates improve before your new deal starts, you can always drop it and get a new, cheaper deal.
But if the rates deteriorate, at least you have invested a lower rate.
If you have more than six months left. . .
Start preparing for when you need to take out another mortgage. You can get a good idea of how much more you’re likely to pay by using the online mortgage calculator on Mail’s financial website, This Is Money. Go to thisismoney.co.uk/calculate.
For example, if you come off a two-year fix on a £200,000 outstanding mortgage, your monthly costs would increase by about £377. After a five-year fix, your bill would increase by £281.
Consider overpaying on your mortgage while still having a lower interest rate. This keeps monthly costs down when you move up to a higher one.
For example, if you paid off 10 per cent of the balance on a £200,000 mortgage while on a two-year fix of 2.56 per cent, your repayments would be £128 less if you switched to a new two-year fix of 6.19 per month. cent than if you hadn’t reduced the debt.
With most lenders, you can overpay up to 10 percent per year without a prepayment fee (ERC) of between 1 and 5 percent of the balance.
When you buy a new home. . .
Higher rates will affect your budget – make sure you know what you can afford.
If the numbers don’t add up anymore, don’t overstretch yourself. Instead, try to renegotiate the purchase price and hunt for more affordable properties.
If you cannot pay your new bill. . .
Talk to your mortgage lender and ask for help to ease the burden. A possible option is to extend the term of your mortgage, so that you pay it off in 30 years instead of 25 years, for example.
This would reduce monthly payments but increase the total interest you would pay over the life of the loan.
For example, if you extend your £200,000 mortgage at a rate of 6.19 per cent from 20 to 30 years, your monthly payments would fall by £231, from £1,454 to £1,223.
However, the total interest you would eventually pay would increase by £91,342 (assuming rates remain the same).
Even older borrowers may be able to extend their mortgage, within limits. Lenders often extend them until the oldest borrower’s 70th birthday.
A second option is to switch to an interest-only mortgage for a short period of time. This reduces payments because you don’t pay off any of the capital, only the interest on the loan.
For example, if you switch from an interest-only mortgage to an interest-only mortgage with a balance of £200,000 and a rate of 6.19 per cent, your payments will be reduced by £280 per month from £1,312 to £1,032.
However, your lender will likely require you to have a plan for how you will repay the capital over the long term.
A third option is to take a temporary payment break. Depending on your circumstances and previous payment history, you may be able to take a break of up to six months.
However, this option is not available for all mortgages – it depends on the terms of the product.
Think carefully before taking a payment break as your credit score will be affected and it could affect your ability to get loans in the future. You also get interest even if you don’t pay.
If you have paid too much in the last 12 months, you can pay too little instead of a deferred payment. However, talk to your mortgage lender before you underpay.
Conversely, if you’ve struggled to pay your mortgage and missed payments, you’re unlikely to be accepted for a payment hiatus.
Services such as Citizens Advice and MoneyHelper provide free, independent advice on financial matters and may be able to discuss options with you.
For low-income earners, the government offers a mortgage interest support scheme, lending you the money to help you keep making the payments. Go to gov.uk/support-for-mortgage-rate
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