The Banks Monetary Policy Committee (MPC) opted to hold the base rate at 5.75 per cent for the fourth consecutive month and with inflation in the housing market is finally cooling this is the best time for homeowners to consider shopping around to find a better mortgage deal.
If you’re paying your lender’s Standard Variable Rate (SVR), switch!
If your mortgage deal has run out, you will no doubt be currently paying your lender’s SVR.
As one of the most expensive ways to borrow, you must start looking for a cheap deal immediately and remortgage!
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If you don’t like surprises, fix.
The most obvious solution to avoid the pressure of interest rates is to opt for a fixed rate mortgage. This way, youll know how much youll be paying for a set amount of time.
With interest rates being unpredictable of late, opting for a fixed rate mortgage has become the norm. However, industry experts are now hinting of possible cuts in the base rate over the coming months and if rates do fall you wont benefit.
If you have Savings, try offsetting your mortgage
With rising inflation, it can be almost impossible for taxpayers to make money on a variable rate savings account, especially if they pay higher rate tax.
Rather than keeping your cash in a savings account (which is taxable), by linking it to your mortgage the cash can work to reduce your debt. As most modern mortgages calculate interest on a daily basis, every pound will work to reduce the interest payable on your largest debt, no matter how short a period of time it is in there.
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And whilst the money is used to reduce your mortgage debt during the time it is in the account, it can still be withdrawn at any point — just like traditional savings.
Which mortgage is best?
This depends solely upon your circumstances and how comfortable you are with the amount you are borrowing.
Fixed rate – the rate of interest you pay is the same throughout the period of the fix – for example, 5.50 per cent for three years – so you know exactly how much your mortgage will cost for a given period.
The risk is that rates on variable-rate mortgages may fall below your fixed rate, and you will find yourself paying more than other borrowers. However, a fixed rate allows you to budget confidently.
Discount mortgages – the lender’s SVR is reduced by a set percentage. For example a 2.00 per cent discount on a variable rate of 6.50 per cent means you pay 4.50 per cent for the offer period.
If the SVR changes, so does the rate you pay, although you’ll always be paying 2.00 per cent less during the discount period.
Lenders are increasingly offering stepped discounts where the margin between the SVR and the pay rate decreases after a set period.
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Base-rate trackers – the rate you pay is at a set margin above the base rate and moves up and down as the rate changes.
This can be appealing because you know that when the rate is reduced, your monthly payments will go down. On the flipside, when interest rates are rising you can be sure the monthly cost of your mortgage will also go up.
Some tracker mortgages have caps, so you know the cost wont rise above a certain level (see capped rates).
As well as choosing what type of pay rate you want on your mortgage, you will need to consider if you want the following features:
Flexible mortgages – flexible mortgages give you more control over how you pay off your mortgage.
There are a number of features you can expect on a fully flexible loan: the opportunity to make overpayments, the facility to underpay and take payments holidays and the chance to drawdown money that you have overpaid.
Most flexible mortgages will also have daily interest calculations so you get the benefit of any overpayments straight away.
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Current account and offset mortgages are the ultimate in flexible mortgages. Your current account and/or savings are linked to your mortgage and any money you hold in them reduces your mortgage debt and the interest payable on it.
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