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Are you ready for a rise in interest rates?

Tuesday, 17th February, 2015

Interest rates have remained very low for several years now. However, the Bank of England could soon announce a rise in the Bas Rate. If that happens, for most people, it would increase their monthly mortgage payment. What's more, there may be several such rises implemented in the coming months and years. That is why it is really important you start putting measures in place now to ensure you would be able to afford higher repayments. How much more might you have to pay? No one knows when the Bank of England will raise interest rates, by how much, or how often. The following indicates what a range of different rises in interest rates might mean to a typical customer. Here is an example of the effect of different rate rises on a typical Repayment mortgage: Mortgage balance.................. 100,000 Term remaining...................... 16 years Current rate............................ 4.79% Standard Variable Rate Current monthly payment....... 746.65 If the rate rises by 0.5% the monthly payment will increase by 26.41. If the rate rises by 1% the monthly payment will increase by 53.33. If the rate rises by 2% the monthly payment will increase by 108.68. Here to help you take stock. It is essential that you assess your financial situation now to ensure you will be able to carry on making your mortgage payments, even if interest rates go up. To help, we have outlined some of the things you can start thinking about today that could enable you to be in the best possible financial position tomorrow. If as a landlord there are some specific questions you might be asking yourself, especially in the current situation: - Have you planned the break-even points for all your rented properties? - Have you reviewed your rental income against different levels of outgoings, factoring in your buy-to-let, mortgage repayments at different rates of interest? - Have you kept money aside as a contingency for void periods or sudden increases in mortgage payments or other expenses? Start considering your options. It is vital that you are prepared for any rise in your monthly mortgage payments. There are steps you could take now that might help you cope with the long-term financial impact of any increases in the Bank of England Base Rate. Here are some you may wish to think about. Making regular overpayments - by making overpayments each month you steadily reduce the balance you owe, saving you money in the long-term. Even the modest monthly overpayments can make a significant difference to the amount of interest you will pay over the term of your mortgage. It is also worth considering that most mortgage lenders have tightened their lending criteria and require customers to have a lower loan-to-valve (LTV) to secure the best rates. So making overpayments now could, therefore, open up more re-mortgage options in the future. However, before you opt to make overpayments you should decide whether paying off other debts (such as credit cards) first would be more beneficial to you, especially if you are being charged higher interest rates. Making capital repayments - making lump sum capital repayments on your mortgage will reduce the capital balance on which you are charged interest. This could mean you save a substantial amount of interest over your mortgage term. Lump-sum capital repayments can be made at any time and you will not be charged any fees when making capital repayments or overpayments. Where to turn for help. There are a number of organisations which offer free support and advice that can help you keep your finances on track. They can also provide impartial information on what to do if you are experiencing, or are anticipating, any financial problems. The Money Advice Service provides free, clear and unbiased advice to help make the most of your money. Citizens Advice offers free, confidential and impartial advice on legal, money and other problems. National Debtline is the helpline that provides free, confidential and independent advice on how to deal with debt problems. StepChange is the UK's leading debt charity and can help you manage your debts as well as better understand your money. This free and confidential service offers debt advice that is based on over 20 years experience.


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