You’ll almost certainly be aware that the Bank of England has raised interest rates recently and you might be wondering (or worrying) how this will affect your finances, especially your mortgage.
Worry no longer because we’ve got seven tips to help you to prepare for any potential increases in your monthly mortgage payments.
Find out if you’re on a fixed or variable rate mortgage
This is very important, because if you’re on a variable rate, then you’ll see the effects of the rate rise pretty soon. If you’re on a fixed rate, you’ll have some breathing space, but you need to find out how much longer your current deal lasts, as any new rate you remortgage to will probably be higher.
Work out how much more you might be paying each month
If you’re on a variable rate mortgage or your fixed rate deal ends soon, then talk to your provider or use a mortgage calculator and find out how much your monthly payments will increase by. Most people will be pleasantly surprised by how small the increase may be, but if the BoE decides to keep bumping up the base rate, then all those little increases will start to squeeze.
Look at ways to absorb the mortgage increase
Look through your expenses and see if you can cut a few corners anywhere in order to free up money each month. You should do this even if you’re on a fixed deal so that you can put this extra money into a savings account as a buffer against eventual mortgage rises.
If you’re worried, ask for financial advice
You can speak to a debt adviser even if you’re not in debt; they’re there to help you manage your money and the sooner you take control and start preparing, the easier it’ll be.
Improve your credit score
Having a healthy credit score can help you to secure the best mortgage rates when you decide to remortgage. If you’re on variable rate deal, then it may be time to think about fixing for at least two years.
Take a close look at your current deal
If your current fixed deal is coming to an end within the next six months then you should be looking around for the next one. However, if you’ve got a little longer on your deal, it might be worth switching early to secure a good rate just in case the BoE puts up interest further in the next year. You might have to pay a fee, but this might be less than you’ll be paying if the interest rates are 0.50% or 0.75% higher than they are now. If you’re on a variable rate, then a fixed deal might be cheaper and less stressful.
Overpay your mortgage or save a little more
If it’s going to be a while before you’re hit by the rate rise, then try to either make overpayments on your mortgage or put some extra money into your savings account. After all, your savings will benefit from the interest rate rise while you wait out your current deal. It’s also worth remembering that your monthly mortgage payments will have reduced your outstanding balance, which will offset some of the rise caused by the new and higher interest rate.
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