NEEDTOKNOW

The Daily Telegraph - Property - - Property Clinic -

Con­tin­u­ing the se­ries in which our Clinic ex­perts pro­vide a guide to those thorny is­sues that can trip up the un­wary. This week, James Cot­ton on cop­ing with ris­ing in­ter­est rates: In­ter­est rates have risen and I’m afraid they are go­ing to get higher. How can I pro­tect my­self? The most ob­vi­ous way to cope with ris­ing in­ter­est rates is to opt for a fixed rate on your mort­gage. This will pro­tect you against any rises in in­ter­est rates over the term of the deal. Capped rates are also worth con­sid­er­ing as they carry a cap above which the rate can­not go. What if I’m not on a fixed rate and still want to cut my monthly re­pay­ments? It is im­por­tant to re­view your in­ter­est rate. Your mort­gage is likely to be a sub­stan­tial debt and re­mort­gag­ing to get a bet­ter rate of in­ter­est can make a lot of dif­fer­ence. Many bor­row­ers are not on an in­cen­tivised deal and are in­stead sim­ply pay­ing their lender’s Stan­dard Vari­able Rate (SVR). SVRs are cur­rently around 7.5 per cent – 2 per cent higher than the cur­rent base rate of 5.5 per cent. Best-buy deals are also about 5.5 per cent at the mo­ment. By knock­ing 2 per cent of their in­ter­est rate, some­one with a £100,000 in­ter­est-only mort­gage could cut their mort­gage pay­ments by £166 per month or £2,000 per year. How do I go about it? Approach your cur­rent lender to see what they could of­fer you and shop around or approach a bro­ker to see what else is avail­able. Check that you are free of any Early Re­pay­ment Charges (ERCs). And if re­mort­gag­ing is not an op­tion? If your bud­get re­ally is stretched and you can­not im­prove your mort­gage deal for the time be­ing, there are other ways of re­duc­ing your pay­ments. If you have a re­pay­ment (cap­i­tal and in­ter­est) mort­gage, you could switch all or part of it on to in­ter­est only. An­other al­ter­na­tive is to ex­tend the term of the mort­gage. Nei­ther of th­ese op­tions is ideal as they both re­sult in you pay­ing more in­ter­est over the long term, how­ever they can be used as a short-term respite. What hap­pens if I get into trou­ble? It is es­sen­tial that you ad­dress the prob­lem rather than stick your head in the sand. If pay­ments are tight, it is likely that prob­lems will get worse, so nip them in the bud. Approach your lender and ex­plain the sit­u­a­tion – they should be able to of­fer help and ad­vice. If not, or­gan­i­sa­tions such as Cit­i­zens Ad­vice can of­fer sup­port.

James Cot­ton is a mort­gage spe­cial­ist at L & C (0800 953 0304; www.lcplc.co.uk).

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