What on earth shall I do with my mortgage?

Most of us are wondering what path to take when it comes to fixing our mortgage rates, and wondering whether we are making the right choices. As interest rates seem like they’re rocketing, is it time to bite the bullet and fix, or brace ourselves for a period of uncertainty?

The answer to that question all depends on you and your current situation, in particular the size of your mortgage. Some will easily (if reluctantly) absorb the additional costs, but for others, it could be a real struggle and the implications of this could far outweigh the potential impact of rising energy bills.

We spoke to Wow’s Senior Financial Planner, Geoff Mabbutt, to get his advice on the current mortgage situation:

Geoff: No one can predict the future, but it looks likely that the times of low interest rates are ending. My recommendation to all is to get ahead of the game. Look at your current mortgage rate and your disposable income. Consider when your rate expires, the cost implication if you had to remortgage to one of the rates currently available, and establish what current rates might mean to your monthly mortgage payments. It may even make sense to remortgage early and secure a ‘relatively’ lower rate, especially for peace of mind.

Consider:

• Would your monthly mortgage payments be affordable if interest rates hit 6%? If not, what can be done?

  • Could you extend your mortgage term to reduce monthly payments, or move to interest-only payments? (although not a great solution for many)
    
    

• Are there other personal expenses that can be reduced to accommodate higher mortgage payments?
• Can more money be earned/drawn from your business?
  • How much more might you need? 
  • What should you focus on within the business over the next six to 24 months to enable higher levels of dividend drawings?
    
    
• Could you consider making overpayments?
  • It’s a good idea to make overpayments now every month (before any increase to your payments) as when your rate does go up, you are already used to paying a higher amount, but it’s important to check with the relevant mortgage lender as not all mortgage products allow penalty-free overpayments.
  • If your mortgage interest rate is still around 2%, you might be better off putting the overpayment money into a cash ISA with a better interest rate.

The benefit of being a business owner is that you have the ability to influence your earnings, but if this requires higher revenue targets within the business, then it’s not something that can necessarily be achieved quickly, it may require new business goals or a focus on increasing profitability. 

Many people aren't aware of how significantly rates have risen or what it might mean to your monthly budgets, but the truth is, there is a very real chance that we will all experience higher interest rates when our current mortgage products expire. 

Even if your mortgage rate doesn't expire for one to two years, now may be the time to consider the above and establish what your next move might be.

If you have any questions about the current mortgage situation, please drop us an email.