Five Reasons Not To Panic About Your Mortgage
It’s not a great time for mortgage holders. The Bank of England raised the base rate by 0.5 percentage points to 5 per cent last week, and the core inflation figures recently published suggest the economic troubles aren’t going away quickly.
So if you’re feeling worried about your mortgage right now, you’re not alone.
There are things that can be done, however, so here are five practical suggestions to help ease the panic.
You can extend your mortgage term
If you extend your mortgage term, it will lower your monthly repayments.
The downside of this strategy is that you will have a mortgage to pay for a longer period of time, and that could cost you more in interest.
On the other hand, if interest rates come down at any point over the next few years, you may be able to remortgage onto a lower rate at that point. Potentially, if your financial circumstances have improved sufficiently by then, you could look at reducing your term back down again.
You can book a new rate six months ahead
If your current cheap deal is coming to an end this year and you are worried about rates rising further, you can lock in a new fixed rate deal now.
This is because most mortgage deals can be booked six months in advance.
The good news is that, if between now and your current deal coming to an end rates do start to come down, you can change your mind about which deal you want to remortgage to. So you’ll get peace of mind now, knowing you’ve got a fixed rate that protects you against further rises. But equally, if rates do start to come down, you can look to change the product you’ve booked if a better deal does appear.
You can shop around for the cheapest deal
Although the average two-year fixed rate is 6.15 per cent and the average five-year fixed rate is 5.79 per cent, you may be able to find a market-leading fixed rate for 5 per cent or less, if you speak to a broker.
This is particularly the case if your loan-to-value (LTV) – which is essentially the proportion of the overall cost of the property that the bank is lending on – is 60 per cent or less.
Even if your LTV was high (for example 90 per cent, meaning your deposit is 10 per cent) the last time you borrowed against your home, recent increases in house prices could mean that you will qualify for a more competitive deal when you come to remortgage.
It is particularly important to shop around for a cheaper deal if you have moved on to your lender’s standard variable rate (SVR), as most SVRs are usually at least two percentage points higher than the best buys available on the market.
You can plan ahead – and prepare
If you are still on a super low fixed rate, make the most of it either by putting money aside each month or possibly even overpaying the mortgage. That will put you in a better position when you do come to switch.
Getting into the habit of allocating more of your monthly spend to your mortgage now will mean you do not have such a big shock when your current deal ends, and that will give you peace of mind. And if you put that money in a competitive savings account, you might even earn more interest on it than you’re paying on your mortgage.
You can ask to temporarily switch to interest-only
One of the easiest ways to cut your monthly mortgage payments is to ask your lender if you can temporarily switch from a repayment mortgage to an interest-only mortgage for six to 12 months.
This strategy will cost you more in the end – and as you are no longer paying off your debt, you will move no closer to owning your home. But, as a temporary measure, it can be helpful as a way of significantly reducing your monthly outgoings.
Such a strategy should be considered a last resort. You will end up paying more in the end, but that may be better than struggling and bankrupting yourself now.
Lenders will typically only allow you to do this switch on a temporary basis, for example for six to 12 months. During this period, you may be able to increase your income, for example by getting a higher paid job, or you may decide to sell up and downsize so that you can afford to switch back to a repayment mortgage on your home. The good thing is, taking this step won’t affect your credit file, as long as you make your payments on time.
If you would like to talk to our Mortgage Protection advisor, Jessica Bell - please call her on 01522 556086
Source: Donna Ferguson of inews 25th June 2023