Mortgages are costing the average person £1,000 more as rates rise. Is now the time to fix your mortgage, asks money expert Harvey Jones?
Mortgages have been at all-time lows for so long it is a shock to see them now climbing.
Millions who bought their properties in recent years will never have experienced rising mortgage rates before and need to be ready for them. Those who have only ever paid 2% or 3% could soon find themselves paying up to 5% or more.
Somebody with the average £225,000 mortgage is already paying almost £1,000 more a year in interest due to Bank of England base rate hikes, online mortgage broker Trussle says, and that is set to climb higher.
This is putting more pressure on people’s wallets, as energy and food bills skyrocket, worsening the cost of living crisis.
What happens after your fixed rate mortgage ends?
The good news is that most Brits now take out fixed-rate mortgages, which protect them against recent interest rate hikes. However, that protection does not last forever—once your fix expires you will be exposed to the full force of higher borrowing rates.
If you have a fixed rate mortgage, the first step is to check when your term ends. Then, a few months before the expiry date, start shopping around for a best buy mortgage deal.
"Take advantage of market-leading mortgage rates today, before they climb tomorrow"
Most lenders allow you to lock into a new deal three to six months in advance, so planning ahead could make sense with further base rate hikes inevitable. That will allow you to take advantage of market-leading mortgage rates today, before they climb tomorrow.
Resist the temptation to switch deals before your existing mortgage term expires, though, or you could face early redemption charges. They could wipe out the financial benefits of switching.
Watch out for standard variable rates
One of the biggest mistakes mortgage holders make is to sit on their lender's standard variable rate (SVR) for months or even years.
At the time of writing, SVRs can charge up to 5% or more, yet the same bank may offer five-year fixed rates for just 2.5%. Remortgaging from an SVR could save thousands and give you the security of locking into a fixed rate.
Factor in extra costs on top of your mortgage
Speaking with a broker can help you find the best deal for your mortgage size and any additional fees
Even though mortgage rates are climbing, they are still at historically low levels. Don't just look for the lowest headline rate but factor in other costs such as mortgage arrangement fees, which can add up to £1,000 to the overall cost.
"Even though mortgage rates are climbing, they are still at historically low levels"
Those borrowing larger sums may find it worth paying a higher arrangement fee in order to secure a lower interest rate.
Homeowners with small mortgages might do better with a fee-free deal or incentives such as cashback. Consider speaking to a broker to help you find the right deal.
Spend more to keep interest costs low
Another way to cut mortgage interest costs is to overpay every month. Even an extra £100 can make a surprising difference.
Or pay in a lump sum. Most lenders allow customers to overpay 10% of their mortgage each year without penalty, but check first.
For expert help ensuring that you are on the best mortgage and that your property’s equity is working as hard as it can do for you, request a Reader’s Digest Free Mortgage Review. If you prefer you can request a Free Mortgage Review by calling 0330 038 9260.
Read more: How inflation can affect the housing market
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