The current uncertainty about the whole economy, the bills and what is there to come is at its worst. People are nervous if they will be able to afford food and heating in the winter. On top of that, many are starting to get nervous about the mortgage rates. Are the new payments after remortgage likely to go up significantly or not?.
There is another scary stat for majority of people who have become homeowners recently. Current rates and the trend is likely to be the scariest they have ever seen during their home ownership process.
Many people are asking – how high the mortgage rates are likely to go? Others are looking for ways to get a better mortgage deal. In any case, if you own a mortgaged home – the current situation in the financial market is something you are likely not excited about.
Below I will try to give an explanation as to what is happening with mortgage rates and why are these going up. I will also share some steps I am taking in order to have better mortgage options for when I need to remortgage.
why mortgage rates are going up?
This one is fairly simple. You must have heard that we are going through a period of high inflation with there being real concern of recession around the corner as well.
One way a central bank of a country can tackle this – increase the interest rate. What this does – as it becomes more attractive to save, spending drops and the inflation should get under control.
What this also does though – it makes banks increase their lending rates to make sure they are making more money than by simply depositing it in the central bank.
As a result of this, the cost of borrowing goes up. This makes any borrowing more costly, including your mortgage.
However, while the borrowing becomes more costly, there are ways for you to reduce the monthly payments you will need to splash out.
shop around to find the best option
Firstly, the easiest way to find a better deal – shop around. Comparison web sites like this one can be a great starting point for this. I would also consider picking up a phone and ringing a mortgage advisor. Many mortgage advisors get a fee from the lender so are fully free of charge to you.
Different lenders offer different deals. You will clearly struggle to find a deal at the pre-COVID interest rates. You can find a deal that saves you 0.1-0.5% vs the one you were offered initially in the bank that holds your current account.
If you are like me and looking to remortgage – few things below can help you save some cash.
Be aware, that if you are changing a lender for your next mortgage – solicitors might need to get involved. This obviously comes at a cost which you might be expected to cover.
I would start by checking if the best deal on the market saves you enough during the term of product to cover the cost of legal fees. If the answer is NO – it potentially is worth staying with your current lender.
There is however another option to consider. Some lenders offer to cover the legal fees themselves. If you find a deal that isn’t market leading but saves you vs your current deal and you don’t have to worry about legal fees – that’s a winner.
If you were to stay with your current lender – the solicitor fees are not a concern for you. This remortgage will be simply seen as a product switch.
consider the full cost of your mortgage
Some of the mortgages on the market include a product fee. This is a lump sum that you need to pay to the lender. In return you get offered a better rate for the term of the mortgage vs the standard mortgage.
While I am not a massive fan of these, they sometime are worth considering. One advice I would give you here – consider the total amount that you will pay off in both scenarios. Look at the option that will leave you with the least outstanding debt at the end of the mortgage period.
By doing the above you will make sure to arrive to the best mortgage product that will minimise the time you will be paying this off for. This will also make your interest payments the least possible in the long run.
lock in a rate early
This one is once again more applicable for those looking to remortgage. You will need to read into small print for this. Some lenders mortgage offers stay valid for up to 6 months.
What this means, you can find a good rate today and lock it with the lender. You will have an option in 6 months to either take that offer or go elsewhere.
This allows you to find the best rate today and compare it to the best rate available in 6 months time. This way you increase your chances of getting the best interest rate over longer period of time rather than just a spot rate in the moment.
If the lender who offered you the best rate previously drops the interest rate to less than what your offer was that’s not the worst thing in life. You can always reach out to them with the rate they are offering on the market. The lender will review and amend the offer so you still get their best product.
summary
As inflation keeps going up, I expect that interest rates will continue climbing for a while. This is something many people will have to find a way to deal with.
The key ways you can find the best deal are to shop around, look to lock your rates early and consider the total cost of the product you are getting.
The more work you put into this today, the less you will have to overpay in the long run.