Mortgage ending this year? Lock in to a cheap rate now

If your existing mortgage deal is coming to an end this year, the last thing you’ll want to hear is that the Bank of England base rate could be on its way up.

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But that’s exactly what Mark Carney, Bank of England Governor, indicated last week when he said the base rate could rise before the turn of the year.

Before you start to panic, however, the good news is many lenders allow you to ‘lock in’ to a new deal three to six months before your existing one comes to an end.

Rising rates

Rising interest rates will affect everyone with a mortgage at some point. But in the short-term, rate rises will impact anyone on a variable rate mortgage (where your mortgage rate moves in line with the base rate).

And rising rates will also hit those due to remortgage or buy their first home in the near future.

We’ve crunched the numbers and calculated that anyone on an expensive standard variable rate (SVR) with their current lender could see their monthly repayments shoot up by an extra £264 per year if base rate rose by 0.25%. 

For example, the current average SVR for existing borrowers is 4.84%. On a typical £150,000 mortgage over 25 years, your monthly mortgage repayments would be £863.

But if base rate rose by 0.25%, your monthly repayments could increase to £885, or £22 more a month.

Reserve your rate

With mortgage rates currently at an all-time low, it could pay to lock in to a competitive deal before interest rates start to go up.

Dan Plant, consumer expert at MoneySuperMarket, said: “If you are in a position to fix right now, doing so will get you security at a cheap rate. But even if your current deal doesn’t end until December, many lenders will let you reserve rates that are available right now, for up to six months, for a small fee.

“If you are able to do this, you could ward off the possibility of a huge jump in repayments, which you may see if you waited till your deal ends.”

And now really is the perfect time to lock in to a cheap deal.

Our research shows someone taking out the best paying five-year fixed rate mortgage today could save more than £12,000 compared to seven years ago.

For example, if you borrowed £150,000 and chose the leading five-year fixed rate mortgage paying 2.14%, your total cost over five years, including the £1,675 booking and arrangement fee, would be £40,435.

In comparison, back in 2008, the best five-year fixed rate mortgage was priced at 4.89%, with a fee of £1,094. Over five years, the total cost would come to £53,114, or £12,679 more.

Two-year deals

It’s a similar story for two-year fixes.

Back in November 2008, the leading two-year fixed rate mortgage was priced at 4.79% and came with fees of £995. The total cost of two years came to £21,611.

Today, the best two-year fix is priced at 1.05% with a higher fee of £1,995, but the total cost over two years is £15,651 – a saving of £5,960.

Factor in the fee

Before you plough ahead and opt for what appears to be the cheapest mortgage, you should always factor in the cost of the fee.

Dan Plant said: “When comparing mortgages it’s vital to work out the total cost over the term of the deal, taking both rates and fees into account.

“Don’t automatically be put off by high fees, as it may be worth paying this to benefit from the lowest interest rate. Costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential.”

You can factor in the fee by doing the below:

Find out what your monthly mortgage payments will be using a mortgage calculator
Multiply this figure by the number of months the deal lasts for (say, 24 or 36)
Add the fee on top
This gives you the true cost of the deal over the term
Repeat for the next best comparable deals.

 

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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