Since the news last week, financial data provider Moneyfacts reports that the average 2-year fixed residential mortgage rate has risen to 6.23%, up from 6.19% on Friday.
The average 5-year fixed residential mortgage rate has inched up to 5.86%, up from 5.83% on Friday, the highest since the end of November.
These higher rates follow the Bank of England’s surprise increase in interest rates last Thursday, which lifted the Bank Rate to a 15-year high of 5%.
Now more than ever, we are all looking for different ways to save money. The first place to look is our biggest asset and expense, our mortgages.
Here are a few options to potentially help with the rising rates that you may have heard discussed in the press. As always you must seek the advice of a financial adviser or registered mortgage broker who understands your personal situation:
Switch to an interest only mortgage
When you take out an interest-only mortgage, you agree to pay back only the interest on what you’ve borrowed, rather than the sum itself.
At the end of the term, you pay back the full amount you’ve borrowed in one lump sum.
This can be a good short term solution as it can significantly reduce your monthly payments. However, interest only mortgages are generally only suitable for certain individuals and gaining approval can be more difficult, depending on your circumstances.
Sell your property and downsize
Although this may seem like a last resort for many, for some this is an excellent way of reducing costs and in some instances paying off the remainder of your mortgage completely.
A large proportion of people live in properties that are larger than actually needed, if the children have flown the nest and you find yourself in a 4 bedroom house, then downsizing may be the answer, it also should reduce other significant costs such as heating and council tax.
Extend your mortgage term
Generally, the standard term offered is 25 years, but other terms are available. This can be a good solution to lower the price for a short time. However, be aware that prolonging the pay back of your mortgage means that you could end up paying thousands more in interest over the full term, so it’s definitely wise to review this option often.
Overpay
If you’re currently in an affordable fixed rate deal, now would be the perfect time to overpay. Most lenders will allow an overpayment of up to 10% annually, so this can help reduce your mortgage term.
