Choose a mortgage that will withstand future rate rises
When choosing a new mortgage, it is important to consider your options within the current mortgage market conditions. However, you should also consider how each option will stand up to possible changes in the future mortgage climate, such as in the face of interest rate rises.
An interest rate rise of even less than half a per cent can make a huge difference to the total amount of interest you repay, and your total loan cost overall. As a result, protecting yourself and your finances against future rises in interest rates should be a primary concern when selecting a new mortgage product. Although it might not be possible to completely escape the impact of rate rises, you can opt for products which will minimise the impact on your budget, helping you to stay in control of your finances in the long term.
Listed below are the best products that can help you beat the impact of rate rises on your finances:
| Mortgage type |
What does it offer? |
How does it work? |
| Capped rate mortgage |
Protection against higher interest rates |
The rate of interest on your mortgage is capped, meaning that if the base rate rises, it will only rise to your maximum cap, and no further. You will pay a slightly higher rate of interest overall in return for this security. |
| Fixed rate mortgage |
Protection against variable interest rates, including interest rate rises |
The interest rate on your mortgage is fixed for a set period at the start of the term, during which time your monthly repayments will remain unchanged, even if rates rise elsewhere. You will pay a slightly higher rate of interest overall in return for this security. |
| Long term fixed rate mortgage |
Protection against variable interest rates, including interest rate rises, for the entire mortgage term |
The interest rate on your mortgage is fixed for the entire mortgage term, during which time your monthly repayments will remain unchanged, even if rates rise elsewhere. You will pay a higher rate of interest overall in return for this security. |
| Discount rate mortgage |
Greater protection from interest rate rises than standard variable rate mortgage products |
Your interest rate will be discounted by the lender, usually for a set period at the start of the mortgage term. Your interest rate will vary and may rise, but the impact will be less than if you were to take out a mortgage at the lender’s standard variable interest rate. You may have to remortgage at the end of the period in order to avoid a steep increase on your monthly repayment when your interest rates revert to the lender’s standard variable rate. |
| Offset & Current Account mortgages |
Reduce the amount of interest you repay on your loan by offsetting the outstanding mortgage amount with monies held in linked accounts |
Any money held in linked bank accounts will offset the total amount outstanding on your mortgage at that time, meaning that you will be charged interest on a smaller amount than you actually owe. This can greatly reduce the total cost of your mortgage. |
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