MORTGAGE holders have been urged to shop around for bargain basement prices before rates rise further in 2022.
MoneySavingExpert founder Martin Lewis issued the warning to homeowners with standard variable rate (SVR) mortgages.
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Interest rates rose last week for the first time in three years as the Bank of England looks to stave off inflation and a cost of living spike.
Monthly repayments will therefore rise for the estimated quarter of homeowners with a variable rate mortgage.
Six banks including Barclays and HSBC have already hiked mortgage rates, adding hundreds to household bills.
How much will the rate rise cost me?
Broker Trussle has estimated the rate hike will add £300 to the average annual cost of an SVR mortgage.
That’s based on a typical £224,400 mortgage amount with a standard 1.73% rate and a monthly repayment of £921.91.
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Adding an extra 0.25% to the rate means a new cost of 1.98% or £948.95 each month.
That £27 monthly hike costs the homeowner an additional £324.48 each year.
And a rise of 0.15% on the current average SVR of 4.4% would add roughly £408 to monthly repayments over two years.
However, locking into a fixed deal will give you certainty over your repayments for a set period and protect you from interest rate rises.
Some firms have even begun offering 40-year loans for homeowners who want long-term certainty over what their rates will be.
Lewis has urged households to check if they can switch their mortgage and potentially save thousands each year.
He explained in the MSE newsletter: “The good news is rates for switchers are ultra low and had largely priced in last week’s rise.
“But they may not stay low for long as many economists also expect further base rate rises in 2022 to combat soaring inflation.
“So everyone with a mortgage should at least check their situation and see if they can save £1,000s by switching.
“Big savings are possible.”
What does remortgaging mean?
Remortgaging, or switching your mortgage, means finding a new home loan for your property.
It can be with your existing lender or a new one altogether.
Switching provider for a loan of that size – which is typically the biggest financial commitment of a homeowner’s lifetime – isn’t always a good idea.
You might face a costly exit fee, too. Don’t take any decisions lightly.
But you could be in line to save thousands over the course of a new loan if you get improved terms.
SVR holders might be in luck if they can sign a cheaper deal before interest rates rise further, which is expected to happen by next Spring.
According to Money Facts, the best remortgage deal as of today is currently at Furness Building Society, which is offering a 1.33% rate fixed for two years with a 20% deposit.
Barclays Mortgage is also offering a competitive 1.49% rate with no minimum fee for two years provided you can offer a 40% deposit.
However, the rate rises should help savers who have struggled to get a decent return on their money for years.
But the impact of such a minor rate rise won’t make a big difference just yet.
A savings account with £1,000 earning 0.1% interest would accrue just £1 extra a year.
With a higher 0.25% rate, you’ll now earn £2.50 each year.
How to find the best mortgage deal
Finding the right mortgage deal for you takes plenty of time and effort, especially as changing bank rates mean providers can offer different terms.
We’ve seen this already in the form of banks raising mortgage rates in the wake of the Bank of England’s announcement last week – even doing so before the move was confirmed.
But in the grand scheme of things, bank rates are still historically low.
You should look into your potential exit fee before making any binding decisions.
And speak to a good mortgage broker if you can.
They could cost you a pretty penny, but might save you a small fortune, too.
Remember, locking into a fixed deal will give you certainty over your repayments for a set period and protect you from rate rises.
You can also use a comparison website to find deals across the market based on your level of deposit and whether you want a fixed or variable rate.
A site will usually let you search for numerous types of home loans, such as for first-time buyers or the best buy-to-let mortgage deals.
This will give you an indication of what’s on offer, but you will need to do the application yourself.
Some lenders may not be on comparison websites, so it is worth searching directly online as well.
Mortgage holders have been advised not to pay off their home loans too early – especially if it means having no cash left over.
Homeowners should also check they are getting the lowest mortgage rate they can get, regardless whether they are planning to pay it off early.
MoneySavingExpert’s free online calculator can also help you work out how much you could save if you’re overpaying your mortgage.
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