What can I do about increasing Mortgage repayments?
If you are a homeowner with a mortgage and are worried about your repayments then act now and fix your mortgage rate before interest rates rise again. We’ll look at current conditions in the mortgage market, the benefits of sorting your mortgage out now, and what’s happening in the market. With the cost of living storm sweeping the nation this Summer, its perfectly possible to take steps to manage your monthly outgoings, but acting now is critical. Working out mortgage repayments can be difficult though, so we’ve written this article to help you consider your options.
David Liddle, Director at Liddle Perrett speaking about mortgages and fixed rates
“Mortgage holders need to look seriously at rising costs and fix their mortgage rates as soon as possible to hold their interest rates and monthly repayments to weather the current cost of living crisis.
Any homeowner with a mortgage deal at the moment should look at a new arrangement. Ending a mortgage arrangement early may attract a penalty, but that is a known value so it is possible to calculate whether it is financially sensible to move early.
It’s a no-brainer for homeowners either coming to an end or not in an arrangement to fix their rate now. Knowing how much one of your biggest outgoings is going to cost you every month means that people don’t have to worry about rising mortgage payments while food and energy prices continue to rise.”
For people with six months or less on their current deal, shopping around now makes perfect sense.
If you’re in a fixed rate deal or another arrangement then you should be looking around now too. New arrangements like fixed rate mortgage deals can be secured for up to six months ahead of time.
For people with six months or less on their current deal, shopping around now makes perfect sense. But the story doesn’t end there. For homeowners in a deal that has more than six months left it could be financially sensible to pay any penalties for ending a deal early and making new arrangements. It’s important to make your arrangements early so that your mortgage repayments move seamlessly from one arrangement to the next. That way you won’t have any unnecessary interest added to your payments.
To help you calculate your repayments and make some comparisons with different interest rates, payment terms, and so on, take a look at this monthly mortgage repayments calculator*
*Please note that by clicking this link you are leaving the regulatory environment of Liddle Perrett Ltd
More about Fixed Rate Mortgages
A fixed rate mortgage secures your interest rate for a set period of time. Typically 2,3 or 5 years but there are other options. So you know exactly what your monthly mortgage payments will be for your chosen term. This option gives you the security of knowing that your payments won’t rise which is good for your household cashflow, but if interest rates fall your payments won’t. There will be fees to pay for moving lenders or products during the fixed term.
How do Mortgage Repayments Work?
Working out what your monthly outgoings will be can be tricky, especially when it comes to mortgages.
Mortgages in the UK use compound interest, which makes it complicated to calculate. Here’s an example of how your monthly mortgage repayments work:
You borrow £10,000 at 2% interest for 5 years. Your annual payments are 32121.58, making your monthly repayments £176.80
In the first year you pay £200 in interest, with the remaining payments going towards your loan. So next year you’ll owe £8078.42
You’ll make the same repayment the following year and in subsequent years, but the difference is that each year the interest is slightly lower because you’ve paid off some of the debt, so there’s less to apply the interest to. Are you with us?
This is where interest rates are so important to understand. If the interest rate in this example were 5% you would pay almost £1000 more interest. So imagine the difference on a loan of £200,000 over 20 years.
Mortgage calculators are great tools for testing different interest rates, loan amounts, and timescales.
The rise in the Bank of England base rate from 1% to 1.25% means that mortgage rates have risen as well. Financial firm Moneyfacts reports that the average interest rate for a 5 year fixed rate mortgage has risen to 3.37%, its highest level since December 2014. And Moneyfacts reports that the average interest rate on a standard variable rate mortgage at the beginning of June stands at 4.91%, the highest since February 2009.
There is a clear benefit for homeowners looking now at a new fixed rate deal rather than waiting for any existing arrangement to end and then shopping around. There could be a delay to find the right deal, which means that people could be paying more than they need to.
And with inflation forecast to breach 10% in the coming months, homeowners are facing the tightest squeeze on income for decades. Take a look at the blog we published in April where we looked in depth at fixed rate deals and mortgage repayments.
Making sensible financial decisions now will save homeowners expense and higher interest payments later on, and with the Bank of England base rate expected to rise further to combat rising inflation, pressure on mortgage interest rates will continue for the foreseeable future.
Don’t forget to consider your mortgage protection when you take out a mortgage so that you and your family are protected should the unexpected happen.
Liddle Perrett Ltd is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority