Preparing for Higher Mortgage Rates in 2024
Written on 27 October 2023 by
For homeowners whose fixed rate mortgages are set to expire in 2024, the prospect of transitioning to a higher mortgage rate may be a cause for concern. While rising interest rates are a natural part of the risk when taking out a mortgage, it's essential to be prepared and have a plan in place to ensure you’re financially stable by the time your payments are due to increase. In this blog, I’ll explore what you can do to prepare for the end of your fixed rate mortgage.
Review Your Current Mortgage Terms
The first step in preparing for the end of your fixed mortgage rate is to understand your current mortgage terms. Take a close look at the following:
- Interest rate – take note of your current interest rate. You should also consider comparing mortgage rates currently on the market. Taking these steps will give you an idea of how much your monthly payments may increase when you remortgage. It’s also important to make a note of when you are due to come to the end of your fixed rate or introductory period to ensure you leave plenty of time to review and put a deal in place so you can avoid going onto your lender’s more expensive SVR (standard variable rate)
- Loan balance - calculate your remaining loan balance to determine how much you owe when you come to the end of your deal. This will be useful when comparing refinancing options in the future
Budget for Higher Payments
When you reach the end of your introductory rate, you may find that your monthly payments will increase due to the rise in interest rates. You can start preparing your budget to accommodate these changes by considering the following:
- Calculate the potential payment increase – once you have a new rate in mind, you can use our mortgage repayment calculator to work out your new potential monthly payments
- Review your financial goals – consider how the potential increase in mortgage payments could affect your saving plans and reassess your budget
- Emergency fund - be prepared to dip into an emergency fund – and/or try and save towards one – to help cover unexpected expenses or income disruptions that may arise due to higher mortgage payments
Consider Remortgaging
Remortgaging is one way to potentially reduce your future monthly payments as can enable you to secure a rate before they rise further and it will help you avoid going onto your lender’s more expensive SVR (standard variable rate). Here's what to consider:
- Start early - begin the remortgaging process well before your fixed rate expires to ensure you have ample time to explore options and secure a better rate. You can secure a remortgage up to 6 months prior to your fixed rate ending. Securing a new rate early can be particularly useful as it means that if rates were to increase further you would have secured a lower rate already, and if they reduced in the 6 months before your fixed rate ends you would always have the option of switching to a new deal with the existing lender or can even starting the process again with a different lender
- Understanding the costs - be mindful of remortgage costs and fees, these can include valuation, conveyancer, or lender arrangement fees
Evaluate Loan Terms
When refinancing, think about the terms of the new mortgage:
- Fixed or variable rate - decide whether you want to lock into a new fixed rate or consider a variable rate mortgage such as a tracker
- Loan duration - consider the length of your new mortgage. Shorter loan terms will mean higher monthly payments but lower overall interest costs. Whereas a longer term will lower your monthly payment but mean you pay more interest overall
Seek Professional Advice
Before making any financial decisions, it's wise to seek advice from an independent whole of market mortgage broker like John Charcol. We’ll guide you through the mortgage journey and help you find the best option for your circumstances. We’ll also keep you informed in the event rates reduce, meaning you’ll have peace of mind knowing you’re getting the best deal on the market.
Conclusion
Reaching the end of your fixed rate can be stressful. To ensure the transition to a new rate is straightforward and as little of a shock as possible, you should follow the steps in this blog and speak to an independent mortgage broker like John Charcol on 0330 433 2927. We’ll make it easy and ensure you get the best deal for your circumstances.
Category:Nicholas Mendes