Fix Your Mortgage Now If You Can
If you are on a variable rate, you ought to fix your mortgage now, whilst rates are still low and before they go up – which seems inevitable.
There is still some record low rate mortgage deals around. For example, there is a five-year fixed rate at 1.65% available as I write this, but with real inflationary pressures breaking out everywhere, these rates will not last long and fixing on a good low rate fix seems a smart move to me.
It seems nailed on that interest rates will have to rise very soon.
Already, so called “swap rates” – which bankers trade on to fix their own costs – are trending up. The 10-year swap has risen from 0.36% in December 2020 to 1.31% now.
By the end of 2022, most commentators expect Bank of England Base Rate to be at least 0.75%, still historically low, but back up to pre-Convid levels.
How long to fix for will depend on how long you will have the property for – what your long-term objectives are. All fixes come with penalties if you want to close the mortgage early, so you need to know your long-term plans.
How long to fix a mortgage for?
I am not planning to sell my properties any time soon, so have always plumped for five-year fixed rate deals. They come at higher interest rates than two-year fixed rate deals, but of course, there is no need to have to re-mortgage again in 2 years’ time, pay another fee and produce all the voluminous sheaves of paperwork that your new lender will require. And chances are that it will mean a new lender, because the best rates are always reserved for new customers. A lot of hassle. So, I would prefer to set for a five-year term and then forget about it.
Most fixed term mortgage loans will allow you to pay off 10% of the mortgage amount outstanding each year. But do check this. Not all will allow it.
Quite a lot of my variable rate loans are on good very old Bank of England Tracker rates which I took out pre the 2008 financial crash. Lenders do not tend to do these anymore, after they ended up losing a lot of money on them due to the crash.
These will inevitably go up too as the Bank of England raises its base rate but given that they are at such low margins over the base rate, I may leave them alone and not move them to fixed term deals.
But if you have any tracker or other variable mortgages where the interest rate is set at more than say 2 or 2.25% over the base rate, maybe now is a good time to fix them too?
Do not hang about though. The good deals will not last.
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