With interest rates on the rise, more and more people face the prospect of higher monthly mortgage payments. Add this to the increased cost of living with rising energy bills and fuel prices and many households are now facing much higher monthly outgoings. It doesn’t look like it will end here either, with even more increases forecast. Of course, we all want to save money where we can but one of the biggest savings we can currently make is with the best mortgage deal. We take a look at the kind of savings you could make on an average mortgage.
WHAT TYPE OF MORTGAGE DO YOU CURRENTLY HAVE?
If you are on a tracker or standard variable rate mortgage, every time the Bank of England introduces another interest rate rise, your monthly payments will increase. You may be on a fixed rate which still has a year or 2 to run however, if you are on a fixed rate that is due to end soon, or are not on any kind of fixed rate, now is the time to act.
HOW A FIXED RATE MORTGAGE CAN SAVE YOU MONEY
Knowing how much money you have going out each month means you can budget and plan accordingly. It means there are no nasty surprises and you know exactly where you are. Fixing your mortgage rate for a period of 2-5 years means that you know that no matter how much the interest rates increase, you won’t be paying more.
HOW LONG SHOULD I FIX FOR?
This will largely depend on the offers available to you. The longer you can fix your rate for, the more certainty you will have with your payments. If interest rates keep going as they are, it is wise to fix for between 3-5 years if you can.
HOW MUCH COULD YOU SAVE ON YOUR MORTGAGE DEAL?
To give you an example of how much you could save by fixing your mortgage now, let’s take a look at an example:
HALIFAX FIXED RATE – 5 YEARS
This particular example was worked out on 8th May 2022 using an illustration from the Halifax. It is based on a mortgage of £150k, fixed for 5 years at a rate of 2.69%.
Firstly, let’s take a look at what would happen to your current mortgage rate if you did nothing!
You may be paying around £500-£600 a month on your current deal. Now, in most circumstances, you can expect to be paying slightly more with a new deal. The reality is that interest rates have already increased three times since most started their existing fixed terms. These previous increases will be evident in the fixed rates you can get now however, if you do nothing, once this fixed term ends, you will move to the current rate of 4.49% which would give you a monthly repayment of £811. Now that’s a big jump.
If you were to take a new fixed term for 5 years at a rate of 2.69%, you will pay a £999 fee and then your monthly payment will become £691 per month. That’s a saving of £120 per month or £1,440 per year.
PROTECT YOURSELF AGAINST FUTURE INCREASES
With interest rates likely to rise again in a few months, let’s consider the base rate goes up again by 0.25% and lenders increase their rates by 0.35%. Then you will be paying more again. And where will it end?
If you would like to discuss your mortgage deal options, we would be delighted to help. We can offer the benefit of our advice, expertise and experience as well as having access to the whole of market to find the absolute best deal for you. Simply call us on 01934 756717.
The above example does not constitute any advice and has been provided for illustrative purposes only. Should you require a personalised quote then please get in contact.