I'm a mortgage expert – five ways to reduce your repayments as interest rates rise | The Sun
RISING interest rates mean millions of people are now paying more for their mortgage each month.
Last week, the Bank of England increased the base rate of interest by 0.5 percentage points to 1.75% – the biggest hike in 27 years.
And anyone on a variable or tracker mortgage will be the first to feel the effects of the increase.
These mortgages are linked to the Bank's base rate – so when it goes up, so do monthly repayments.
There are around 1.9 million homeowners with these mortgages.
The latest hike – the biggest since 1995 – is expected to add £888 a year on to their repayments.
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But there may be ways to reduce these repayments to help alleviate the squeeze on your household income.
Claire Flynn, mortgages expert at money.co.uk, said: “Interest rate increases combined with the cost-of-living crisis have got many people worried about their future mortgage repayments.
"If you’re looking at ways to reduce these, then there are a few things you can do."
Here are her top tips:
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Speak to your lender
“Firstly, if you are concerned about being able to make your mortgage payments at the moment, you should speak to your lender as soon as you can and see what options it has," Claire said.
It might be able to help you reduce your repayments temporarily by switching you to an interest-only deal or pausing your repayments for a short period of time while you get back on your feet.
It could also be able to increase your mortgage term so you can spread out your repayments over a longer period and pay less each month.
The best thing to do is tell your lender as soon as possible if you are struggling and it should try and help you.
Think about remortgaging ahead of time
Homeowners on fixed rate deals aren't immune to increasing costs.
When the fixed rate period ends, your mortgage reverts to your lender's standard variable rate, which is usually much higher, unless you remortgage and agree another deal.
If your fixed-rate mortgage is going to come to an end in the next few months, then you'll notice your repayments will rise considerably because rates have risen across the board.
Claire's advice is to act early to save you money later: “If you’re on a fixed-rate deal and comfortable with your mortgage repayments at the moment but concerned about interest rate increases when your deal comes to an end, make sure to look at remortgaging options early."
Most mortgage deals in the UK are valid for six months, so if your current deal is due to expire in the near future, you could lock in a rate now and switch when it comes to an end to avoid an early repayment charge.
Consider paying more
Claire suggested you could actually pay more now in order to reduce your payments later.
“If you’re comfortable enough with your current repayments, and feel you could actually pay more, it might also be worth using your deal’s overpayment facility to pay off more of your debt each month," she explained.
Before overpaying, it's important to check your mortgage terms. Typically, providers will let you overpay by up to 10% of the total amount you owe each year – but if you go over that you incur penalty charges.
Claire added: "If you overpay now, you might be in a lower loan-to-value ratio [where your debt is a lower proportion of the value of the property] when you come to fix your next deal, which generally gives you access to better rates."
Move to an offset mortgage
If you have savings, you could consider moving to an offset mortgage to help reduce your monthly repayments.
"This allows you to use your savings to reduce the amount of interest you pay on your mortgage," Claire said.
"You can still access your savings but you won’t earn any interest on them, so it’s normally only worth it if you save more in your mortgage payments than you would make in interest on your savings."
Speak to a broker
If you want to try and remortgage to lower your repayments, it is worth speaking to an expert mortgage broker.
Claire said: "They can look at the whole available market to find the best mortgage deals for you and your circumstances.”
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They might also have access to better deals than you are able to get yourself.
You don't have to pay for this service: companies such as L&C and Trussle don't charge anything to help you find a new mortgage.
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