MILLIONS of households could be set to see their monthly mortgage repayments rise, but a little-known trick could save you thousands.
The Bank of England is set to hike interest rates tomorrow, and it could have a knock-on effect for any households with a tracker or variable mortgage rate.
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But it’s a problem for borrowers coming to the end of their fixed-term mortgage deal too.
As interest rates go up, mortgage providers pull their cheapest deals – and that means you could find your monthly repayment soar when you come to find a new one.
But a little-known trick could save you a fortune.
Many homeowners don’t realise they can get out of their fixed mortgage deal early.
Typically, mortgage providers will let you lock into a new deal three months – or in some cases six months – before your current one ends.
It means that homeowners can secure the best rates now, before interest rates go up.
But if you are a fixed-rate borrower, you may not know lenders often allow you to lock into a new rate up to six months before your current deal ends.
Many wait until their existing loan has run its course before signing up to a new offer.
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David Hollingsworth, associate director at L&C mortgages, said borrowers coming to the end of their current loan should act sooner rather than later.
He said: “A lot of lenders mortgage offers’ are valid for up to six months, so that means you can apply for a deal now, even though you might not be able to complete on that for four or five months.”
According to L&C, the average two-year fixed mortgage rate has trebled since October last year from 0.89% to 2.71%.
In the past month alone, the average two-year fixed deal has climbed from 2.36% to 2.71%.
These rate increases can have a major impact on your monthly repayments.
If you have a £150,000 mortgage on a 25-year term with interest of 2.75%, your monthly repayments would be £693.
But with an interest rate of 3.25% your repayments would rise to £731 – almost £460 more a year.
The majority of homeowners choose a fixed rate mortgage because it gives you certainty over your monthly repayments for a set period, and protects you from interest rate rises.
Anyone with a variable or tracker mortgage rate will see their monthly repayments increase each time the Bank of England hikes rates.
That’s a major problem for many households at the moment, who are already grappling with soaring energy bills, petrol prices and more.
But locking in a decent mortgage rate can help to shore up your household finances.
How do I find a new mortgage deal?
If your fixed-rate mortgage deal is coming to an end your lender will either move you onto a standard variable rate (SVR) mortgage if you do nothing, or you can remortgage.
If you choose to remortgage, you can either try and get a new deal with your current mortgage provider, or shop around to find a different mortgage provider offering a better deal.
A mortgage broker can help you with this process.
They search the whole market and recommend the best mortgage deals for you.
One thing to note when agreeing a new fixed rate ahead of time, is that the deal will run from when you agree it NOT when you actually move on to that rate.
So if you agree a two-year fixed deal now but don’t move over to that new rate for three months, you’ll actually only be paying that rate for 1 year and 9 months.
If you’re staying with the same mortgage provider, however, it may be possible to move over to the new rate earlier – so it’s worth asking.
Keeping monthly repayments as low as possible can help households struggling to pay the bills.
Some homeowners are opting for ultra-long mortgage terms to lower their repayments – but this can cost you more in the long term.
Typically, mortgage terms are 25 years, but you can opt for a 30 or even 40 year mortgage.
You can also get fixed deals for as long as 40 years, if you want certainty over your repayments for the ultra-long term.
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