What should I do about my mortgage now?
Mortgage rates are on the rise. So what can you do about it?
Indications are that interest rates could rise to 7%. And while it’s hard to predict whether or not this will actually happen, I do recall a time in the 90s when the mortgage rates were between 14-18%. And things were hard. Yes, our current rates are still much lower, but the average borrowing amount back then was around £60,000, so the size of mortgages today are far higher.
It pays to seek advice and have a plan
At that time, I regularly witnessed people posting the keys of their homes through the post boxes of banks and building societies. Properties were going into negative equity (where the size of the mortgage exceeded the value of the property – can you believe 100% mortgages were launched after that crisis?). It was not a pleasant period to be advising clients.
But what struck me was, that it was those people who found a way to maintain their mortgage repayments who benefitted. How did they do this? They made a plan. They asked questions (rather than making assumptions or ignoring the situation), they took advice, they sought help, they were open about their finances. So please do get in touch with us – we’re here to help.
Create a repayment model that works for you
This is the time for you to consider your options, to work out what the important factors for your mortgage are and to start to get a clearer picture of your personal situation:
- What is the maximum monthly mortgage repayment that you can afford to pay for your mortgage? Take a look at your current income, household bills and monthly costs and go from there.
- Would you prefer stable or variable monthly repayments? Fixed interest products provide you with certainty of payment over the product term but tend to come with a higher interest rate, variable rate products, such as discounted variable rates or tracker rates, can increase over the product term. Currently fixed rates are priced at 3.50% for two years, 3.78% over five years and 4.09% over 10 years. Discounted variable rates are currently priced at 2.23% (3.76% discount off the standard variable rate of 5.99% for two years*).
- Can you afford to make monthly over-payments to help reduce your mortgage?
- Are you planning to move home? If so, is the product portable?
You may already be in an existing product with early repayment charges (ERCs), so check what these are too. Calculate if it is worth your while to relinquish your current product and change to a new one on the basis that there is a cost saving and you gain stable fixed repayments. You may also want to check what the lender’s current standard variable rate is and stay on this rate for a period of time as it might be lower than the fixed rate product on offer. Typically, there are no ERCs on the standard variable rate.
We’re here to help
When it feels like things are out of your control, there are always options that will help you gain a sense of perspective and changes you can make that will hopefully help steady your ship. So, if you are struggling or have queries, now is the time to focus on the facts and get a plan of action together. And as always, we are here to help you.