It could be time to fix that mortgage?

by Mark Johnston

  Borrowers should review their mortgage arrangements and consider a fixed rate product. That was the message coming from the Bank of England who are in charge of setting interest rates in the UK. It’s been a regular topic recently but is now really the time to look for a fixed rate mortgage to shield from any interest rate increases?

It’s still really hard to tell, experts are split down the middle with some suggesting the rise in inflation and warning from the Bank of England is sign that rates will go up soon whilst others believe that the 0.5% rate will be with us until the end of 2011.

Many borrowers have been benefiting from such low rates and have seen their monthly repayments drop to an all time low. Those on tracker mortgage deals have benefited the most with some even paying a zero rate of interest as their mortgage tracked a number of points below the base rate. Borrowers who were on a fixed rate of interest have benefited when their deal came to an end and reverted to their lenders standard variable rate.

The worry for the Bank of England, the government and lenders is that households are still struggling to keep up with monthly payments even though the rates are so low. Although they did benefit at first, they have now got used to having the extra cash that having rock bottom rates has provided. The concern now is that when interest rates go back up, which could be pretty soon if some experts are to be believed then how will families manage?

The advice all along has been to use the extra money to pay off more of the mortgage debt but this hasn’t always been listened to by many. Those that have done will probably be ok when rates increase, although they will have less spare income, they will be least effected.

Borrowers who are struggling now should really be thinking about fixing their mortgage although this usually means paying more out per month. The first thing borrowers should be is find out what mortgage they are on and how much their interest rate is. This seems fairly obviously but well over half of all borrowers don’t know this basic information.

Borrowers should then use online mortgage payment calculators to work out how much they would be paying if rates go up by 1%. It’s then easy to see what a small increase of 1% would mean to monthly repayments. This is a great exercise to complete in order to understand what impact base rate changes would have.

Any borrowers who cannot sustain even modest rate changes should look to find a fixed rate mortgage now. There are some great offers out there at the moment. Its worth shopping around and seeing what’s available direct from lenders as well as seeing what a mortgage broker can offer.

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