How to cope with interest rate rises on your mortgage
Mortgage holders need to start planning for rises now.
Mortgage holders need to start preparing for interest rate rises, following research which found more than half have no contingency plans in place for when rates do start to increase.
A study by the Money Advice Service (MAS) found that 56% of borrowers have no plans in place to help them cope with an increased mortgage bill. More than a quarter of people don’t know what their mortgage rate is, while 8% are unaware that a rise is coming. Many more simply don’t understand their current mortgage deal and the impact that a rate rise would have.
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Just under half of respondents would find it difficult to cover an extra £150 a month. Thankfully, as the Council of Mortgage Lenders (CML) has pointed out, this equates to two full percentage points on an average mortgage, something that’s unlikely to be seen for a couple of years at least.
Thinking in the short-term, a quarter point rise would add roughly £16 to an average monthly mortgage repayment. Though many haven’t taken steps to plan for higher interest rates, the CML argues that the likely, gradual “baby step” increases will be manageable.
56% of MAS respondents admitted that they could cover the extra cost if they cut back on everyday purchases, 35% said they would dip in to their savings and 15% would take on an extra job.
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What you can do now
There are a few useful measures that you can take before interest rates rise.
The CML recommends that you:
- Remind yourself of what rate you’re paying at the moment, whether it’s fixed or variable and when the deal and any early repayment charges expire
- Use a mortgage calculator like the lovemoney.com calculator to establish what different rate rises would mean for you and whether you’d be able to keep up with repayments
- If you think you would struggle, try writing up a budget to see where if you could reduce spending. Read How to set a budget and stick to it.
Will you be able to keep up with mortgage interest rate rises? Let us know in the comments section below.
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