There are lots of forecasts (and many rumours!) about what’s happening to interest rates over the next 12 months.
At the moment interest rates are set at 0.5% and have been since the credit crunch. This and various other government initiatives have allowed lenders to offer amazingly low mortgage rates, from 1.48% according to MoneyWise Magazine:
For many people, seeing deals at a few percent has now become ‘the norm’, but no-one can be that complacent.
Between 2000 and 2007, prior to the credit crunch, mortgage rates ranged between 5 and 7% - double, and in some cases, triple the cost they are now.
Bear in mind when you take out a mortgage, you do so typically for around 25 years and, over the last 25 years, you would have seen mortgage rates in double figures, like mine in the early 1990s, which went as high as 15%!
So, if you have a mortgage, knowing when interest rates will rise and what impact they will have on your mortgage costs is essential.
Latest forecasts for interest rates
Since yesterday’s (Wednesdays) announcement by Mark Carney, the Bank of England Governor, the forecasts for interest rates to rise were March 2015 and, according to the Independent’s write up, they will rise April 2015.
What is the impact of a rise in your mortgage rate?
If and when interest rates rise and this impacts on your mortgage rate at the time or in the future, here’s some guidance on the likely increase in costs and it’s a good idea to beware of this so you can plan for the potential effect on your finances:-
Example of impact of mortgage rate rises on a £100,000 mortgage, 25 years
Assume a current mortgage rate of 3% on repayment which would be £478.56 per month
The information below is calculated using the BBC Mortgage Calculator
|Interest rate rise||New Payment||Increase per month||Increase per year|
|£100,000 at 5%||£591.27||£112.71||£1,352.52|
|£100,000 at 7%||£715.08||£236.52||£2,838.24|
So at the rates which we saw between 2000 and 2007, you can see the massive increase in mortgage rates which could happen if you are currently on a low rate and it’s vital to make sure you are aware of the impact of rate rise.
If you are worried or want to make sure you protect yourself from rises in mortgage rates, then use a broker to look after your mortgage.
One of the companies we use is Coreco so do give them a call if you need a mortgage or are concerned about your mortgage payments increasing next year.
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