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Anticipating Interest Rates

BY READERS DIGEST

1st Jan 2015 Managing your Money

Anticipating Interest Rates

What can homeowners do now about possible interest-rate rises?

Find out how much extra you’ll be paying

It’s impossible to know exactly when a change will happen and by how much, but you can check online what a 2.5% increase would mean to you and decide if you need to cut back.

Think about over paying

If you have some savings, it’s worth seeing if you can make any overpayments to your mortgage, either in a lump sum or just by increasing the monthly payments. Overpaying £100 a month on a £120,000, 25-year mortgage charging 4% will save you,  £15,000 in interest payments. It’ll also shave five years off your mortgage, clearing it in just 20 years. But there are reasons why it’s not always the best option, so check your terms and condition.

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Explore a new mortgage deal

If your deal is coming to an end, the earlier you prepare the better. You can look into a new mortgage deal to see if you can take advantage of current rates. For certainty, you could lock into a rate with a fix, or you could stick with a variable if that works out more cost-effective.

You may have to move lenders to get the best deal, which means you might need a affordability assessment. If your home value has increased, your loan-to-value (LTV) ratio may also have increased. This could mean you can choose from more lenders and lower rates.

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