Worried about rate rises?
The uncertainty of interest rate rises doesn’t have to go hand-in-hand with being a homeowner. You can protect yourself against interest rate rises in various ways, either by choosing a product that is designed to withstand rate rises, or by managing your finances carefully in order to minimise their impact. Here are TotallyMoney’s top tips on how to beat the rate rises.
Avoid the standard variable rate
If your mortgage’s introductory period has ended and your interest rate has reverted to your lender’s standard variable rate, you are vulnerable to interest rate rises. Any time your lender raises their variable rate, your repayments will rise. You should consider remortgaging in order to take advantage of a better deal with another lender. Opt for a product that is designed to withstand interest rate rises - such as a fixed rate deal - and you could save tens of thousands of pounds in interest charges over the course of your mortgage.
Consider your fixed rate options
The simplest way to avoid interest rate rises is to fix your mortgage rate. Even if interest rates rise elsewhere, your repayments will not rise for the course of the fixed term. Fixed rate mortgages are commonly available for between 1-5 years; however, you can turn short-term fixed rate deals into long-term savings by remortgaging for a new deal each time your fixed rate period comes to an end.
Save with a discount
A discount rate variable mortgage is a great way to protect yourself against the worst of interest rate rises, while still being able to take advantage of interest rate drops. Your interest rate will be a discount of up to about 2% less than your lender’s standard variable interest rate. This will lessen any impact of interest rate rises, as you will be paying a reduced rate to begin with. Discount rate options are a good choice if you have a flexible income that can withstand fluctuating repayments.
Overpay now
Flexible mortgages that allow overpayments can be a big help in the war against interest rate rises. If you make regular overpayments whenever you are able, you will be able to take payments breaks, or make underpayments later on if interest rates rise to levels that stretch your finances too much. You will still be able to take advantage of interest rate drops, and if you don’t need to underpay later on, you will have the happy side-effect of repaying your mortgage faster, and thus paying less interest overall.
Be ready to go
The trick to beating interest rate rises is to always keep one step ahead of the market. Once rates rise, there will be much less room to move, as lenders often pull their fixed and discount products at this point; so keep your affairs in order so that you can switch as soon as you see a good deal. Also, to be truly successful at beating interest rate rises consistently, utilise every avenue available to you in order to find the best deals. A good impartial broker with knowledge of the entire mortgage market is your best bet to find cheap deals that suit your requirements.
Please note: this website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research. For more please refer to our terms and conditions of use.