INTEREST rates are on the rise, pushing up mortgage repayments for many homeowners.
Those on fixed deals are protected for now, but will face higher bills when looking for a new deal.
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Millions of homeowners have a deal expiring in the next 12 months.
When they come to retire they will find mortgage rates are higher than when they previously fixed.
According to Moneyfacts, a typical two-year fixed mortgage rate was 2.52% in August 2021 but has risen to 3.95% today.
An average five-year fixed deal is now 4.08%, up from 2.75% a year ago.
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The Bank of England hiked rates last week to 1.75% and is expected to make further interest rate rises, experts predict, as it tries to tackle rocketing inflation.
Many face a dilemma: whether to wait for the term to end, or leave early and fix now before rates rise further – but pay a potentially hefty charge.
But a new calculator could help you work out which one is the most cost effective option.
Fixed deals let you lock in a rate for a set period of time, usually between two to five years.
You get peace of mind that you’ll pay back the same amount each month for the whole time, but if you want to ditch the mortgage before the term ends you’ll usually pay an exit fee.
This can be in the thousands of pounds, depending on the size of your mortgage and your lender’s terms and conditions.
For some it could be worth paying the fee and locking in a new rate now, before the fix ends.
But for others, it might be worth waiting until the end of the term.
The tool from Nous, which is free to use, can help you work out the saving – or extra cost.
It takes into account how much you have left on your mortgage, the term remaining on the fixed deal, monthly repayments and the exit charge.
For instance, take a 25-year mortgage of £250,000 fixed in August last year at 2.52%.
You can compare the cost for remortgaging next August at the end of the two year term with a rate of 3.95%, versus paying the early fee now of £5,800.
It shows that remortgaging now would leave you worse off by £529 after five years.
It’s worth noting that no one can be 100% certain what will happen with interest rates.
Although interest rates are expected to rise further according to economists, they could unexpectedly fall again.
For instance before Covid, the BoE was expected to continue increasing interest rates slowly, but is droped to a record low of 0.1% in April 2020 when the pandemic hit.
The tool lets you choose what assumptions it makes about interest rates – whether you go with market estimates (what experts think will happen), or are more optimistic or pessimistic about rates.
Greg Marsh, boss of Nous, said: “Many people took out these fixed deals when rates were very low.
“Nobody – including the Bank of England – forecast that they would rise so rapidly, and homeowners are facing a terrifying crunch on top of all the other cost-of-living increases.”
