UK Home Mortgage Borrowers May Now Be Looking To Fix Their Home Loan Rates
With the recent quarter-point rise in base rate, to 4.75%, many UK homeowners may well have spent the last weekend wondering whether or not the time had now come to consider fixing their home loan mortgage rates. With interest rates likely to increase again some time in the next 12 months this option may seem very attractive, especially when compared with times of uncertain interest rates possibly being charged on your home mortgage loan. However, before you rush off to try and fix your existing home loan interest rate, you should give some thought to both the positives and negatives of such a move.
If your existing home mortgage loan is ‘free-float’, i.e. it changes when the Bank of England base rate changes- a variable mortage, then it is likely that the only way you’ll be able to fix your home loan mortgage rate is if you re-mortgage the property. In most instances you can either re-mortgage your existing home loan with your existing lender or with a completely new lender. In either case, it is highly likely that in agreeing to re-mortgage your property, you will be faced with a number of fees, which would include:
- probably having to pay a fee to your existing lender for “repaying” your existing mortgage “early”;
- likely having to pay a fee to appraise the value of your property for the re-mortgage process;
- probably having to pay an arrangement fee or booking fee for the new fixed rate mortgage.
In times of increasing interest rates, these fees may seem an attractive option when compared to possible uncertain month-to-month interest rates. However, you really do need to get your calculator out to ensure that the fees you’ll end up paying are going to be worth the saving you may get from any reduced fixed rate interest you may get on your home mortgage loan. Given that most fixed rate home mortgage loans (Different Types Of Mortgage) are fixed for a very limited period, you may well find that in fact the numbers do not add up in your case and that it would end up being more expensive for you to fix the interest rate on your home loan than it would be if you just carried on repaying your current mortgage.
Of course, if you anticipate that interest rates will increase even further, and that this is a prime time to fix the interest being charged on your home loan mortgage, then this should also factor in your equations, as it is unlikely that UK mortgage lenders will offer you the same fixed rates following several increases in the Bank of England’s base rate.
You would also need to factor in the amount of your outstanding home loan mortgage, as this will pay an important role in how much interest you are repaying.
As such, there could well be circumstances in which you would be much better off financially if you decided to re-mortgage your property by taking advantage of a promotional fixed rate home mortgage loan rate. But, unless you get your calculator out and do some serious number crunching, it is unlikely that you’ll truly know if this is the wisest option available to you.
Richard Smith
8th August 2006
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