Should you secure a fixed rate now or wait in the hope of a more competitive deal?
Homeowners nearing the end of their current mortgage deals may question whether to secure a fixed rate now or wait in the hope of more competitive deals soon. Although interest rates remain relatively high, this dilemma affects thousands of homeowners deciding between locking in now or hoping for a potential rate decrease.
The primary appeal of fixed-rate mortgages over variable-rate deals is the assurance that monthly mortgage payments will remain consistent. Currently, the most attractive fixed rates are lower than variable mortgage rates. Therefore, locking in a fixed rate could result in lower monthly costs if you seek the stability of unchanging payments regardless of interest rate fluctuations.
Long-term fixed rates
For those contemplating a long-term fixed rate, a potential cut in the Bank of England’s base rate might lead to more affordable fixed rates. Being tied to a deal could mean facing substantial early repayment charges if you wish to switch.
Additionally, most long-term fixed-rate mortgages are portable, allowing you to take them with you when moving home. However, reapplying for the mortgage is necessary, and with lenders tightening affordability checks due to rising living costs, there is a risk you might not qualify to transfer your mortgage to a new property, especially if your financial circumstances have changed.
Affordability and borrowing considerations
If you are planning a move and require additional borrowing, this will typically be arranged at a different rate from your existing mortgage. Consequently, you might have two separate mortgages on the same property.
Should you currently be on your lender’s standard variable rate or revert rate, transitioning to a discounted or tracker rate mortgage may offer savings if you prefer to wait and observe fixed rate trends. However, if previously locked into a low fixed-rate deal, expect a significant rise in monthly payments despite finding a competitive variable-rate deal.
Evaluating tracker rates and future trends
Opting for a tracker rate could lower your monthly payments should the base rate be reduced. However, predicting future interest rates is challenging, and deciding whether to fix your mortgage now or wait hinges on your outlook on rate movements in the coming months and your need for budget certainty provided by a fixed rate.
Managing future mortgage payments
Many people are worried about how they will manage steeper mortgage payments when their current mortgage deal ends, so it’s worth thinking about how you’ll cope and whether there are any steps you can take now to minimise the impact.
If you’re lucky enough to have savings available, you may want to consider making mortgage overpayments to reduce the amount you owe more quickly. Most lenders will allow you to repay up to 10% of your mortgage balance each year without penalty, but always check the terms of your particular deal before you start overpaying.
Understanding overpayment penalties
If you decide to pay down or pay off a mortgage, you must consider any penalties. Early repayment charges (ERCs) often apply during any fixed or discounted period and are usually calculated as a percentage of the amount you repay. Frequently, these are tiered and fall away over time.
Depending on the circumstances, it can be worth paying an ERC as the interest saving could be more than the fee incurred. However, this requires careful consideration and consultation with an expert mortgage adviser to ensure it is the right move for your situation.
Alternatives for those without savings
If you don’t have savings available to reduce your mortgage and know you won’t be able to afford higher mortgage costs when your current deal ends, it is crucial to talk to your lender as soon as possible. They may be able to offer solutions or guidance tailored to your circumstances.
Start thinking about ways you can reduce your monthly payments. For instance, if you are a homeowner over age 55, seeking advice on retirement interest-only mortgages could be worthwhile. These enable you only to pay the interest on your mortgage amount indefinitely, thus alleviating the worry of repaying the capital loan, which is only repaid upon death or relocation.
Seeking professional guidance
It is always advisable to seek professional mortgage advice when making significant financial decisions. We can provide insights and strategies tailored to your unique financial situation, offering solutions you may not have considered.
Managing increased mortgage payments requires careful planning and consideration of all available options. Whether it involves overpayments, understanding ERCs, or exploring alternative mortgage products, the key is to act proactively and seek the necessary advice to make informed decisions.
Ready to find a solution that best suits your needs?
If you require further information or assistance, please do not hesitate to contact us. Our team of experts is here to help you navigate your mortgage options and find solutions that best suit your needs. Contact our team today.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
