What To Do When Higher Interest Increases Mortgage Costs?
Published / Last Updated on 29/09/2022
We warned you in June 2020, during Stage 1 Lockdown to be careful and plan for interest rate increases to come. Watch:Low Mtge Rate
We warned:
- What happens when the economy recovers, when inflation then increases and therefore, interest rates go up?
- What happens when your low interest rate period ends?
- Will you be able to shop around or will your ‘affordability test’ fail with higher interest rates meaning you cannot shop around or even worse, you must remortgage to a higher rate and cannot afford it?
- You should only borrow, not just within your means then or ehen even lower interest rates (0.1%pa at the time) but also plan for when rates go up to ensure that you can afford to pay.
This time has now arrived and has been made worse by the energy prices crisis and Russia/Ukraine with interest rates on mortgages now increasing dramatically.
- Avoid staying put on a lender’s Standard Variable Rate (SVR), you will end up paying more.
- Avoid tracker mortgages as rates will rise sharply over the next few years.
- Fix your mortgage at an affordable option and time-period if you can.
- Shop around for deals now before it’s too late.
- Beware early surrender penalties. Evaluate penalties versus the savings you may make in getting a better fixed rate deal early
- Consider an offset mortgage where your savings sit alongside you mortgage account with no interest earned on your savings, but your mortgage interest is only charged on the difference between the amount you owe and the savings you have on deposit.
- Overpay if you can afford it to reduce capital owed which will in turn reduce interest costs as you owe less but also it gets you used to paying higher monthly amounts.
- Look at your budget, you must look at what other expense items are luxuries, or you can afford to cut back on.
- Extend the term of your mortgage say from a 25-year mortgage to a 30-year mortgage, whilst not ideal as you will pay more long term, it will initially reduce your monthly mortgage fee to make it more affordable today.
- Ask your lender if they offer a ‘payment holiday’ or can help you in any other way to get through this higher mortgage costs issue.
- Ask your lender if they will convert you to an interest only mortgage for a short time. You will no longer be reducing the capital owed for a short time but it may help you get through some of the financial difficulties we all face.
