With interest rates being at an all-time low, there has been a lot of talk about rates rising, especially now. The question you might be asking yourself is: “Should I switch to a fixed rate and if so, over what period?”
Remember, everyone’s situation is different, and just because a particular mortgage is suitable for one person doesn’t mean it’s right for you.
When you are considering any financial option, you should put all your cards on the table. You need to look at the rates available and then consider all the “what ifs” and calculate the likelihood of each scenario.
For example, how would it affect you if mortgage rates went up by 2%? If you moved within 5 years, what would the penalties be?
The question you might be asking yourself is: “Should I switch to a fixed rate and if so, over what period?”
As a financial adviser for many years, I have always steered away from the idea that mortgages are portable, meaning that if you move you can take the mortage with you.
Although your mortgage may technically be portable, mortages are secured on a property. You may find that, for example, the lender will not lend on the type of property you wish to purchase. I have known a number of clients who were caught out by this. Consequently, I would be cautious and assume that the mortage is not portable.
The mortgage rate you pay is not the only thing you need to look at. You also need to add all the costs into the equation. For example, any arrangement fee and survey fees (some are included free).
If you decide to opt for a two-year fixed mortgage, you should compare the options by working out the exact cost over the entire period, including all the upfront costs.
If you have a mortgage already, don’t forget to ask what rates your current lender has to offer, as well as looking at alternative lenders. Also make sure you understand the cost of change, including penalties, if any.
Having said all this, even if the outcome of your research is that you decide to opt for a different rate, you still may have some hurdles to overcome. This is because new regulations mean that lenders now have to make affordability tests, which means that borrowing may be harder these days than it was in previous years.
At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.