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HOMEOWNERS are being urged to take advantage of an easy mortgage trick that could save you thousands of pounds every year.
Switching your mortgage deal to a cheaper rate could slash your monthly repayments.
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Interest rates are going up and that means for more misery for the 2million households with a variable or tracker mortgage.
That’s because these mortgages are linked to the Bank of England‘s base rate.
Every time base rate goes up, so do your monthly mortgage repayments.
Interest rates have been hiked four times since last year, from a low of 0.1% to today’s rate of 1%.
That’s added hundreds of pounds on to monthly mortgage repayments for millions of people.
At the same time, the best fixed-rate deals are disappearing from the market.
The average two-year fixed rate mortgage was 2.20% in November 2021 but has increased to 3.03% today.
Meanwhile, the typical standard variable rate (SVR) – which is the rate you’ll go on to automatically when your deal ends – has gone up from 4.41% to 4.78% over that period.
Homeowners are being urged to act now while there are still decent deals available – and it could save you thousands of pounds.
Alex Hasty, director at comparethemarket.com, said: “If you’re on a lender’s standard variable rate, you’re likely to be overpaying.
“At a time when interest rates are rising, borrowers who remortgage onto a fixed-rate mortgage product not only have peace of mind on set monthly outgoings but could also save a significant amount of money in the process.”
According to comparethemarket.com, the average homeowner could save £391 a month by switching to a better deal.
Those with a typical mortgage of £237,000 will have monthly repayments of £1,241 if they’re on the average standard variable mortgage rate of 4.78%.
That adds up to annual repayments of £14,892.
But if you switched to a two-year fixed deal, your interest rate could drop to 1.78%.
As a result, your monthly repayments would fall to £850 – a saving of £391 a month.
At this rate, your repayments would be £10,200 a year, a saving of £4,692 a year compared to those on the SVR.
Those who want longer-term certainty over their mortgage repayments can fix for longer. Some companies will let you fix for 10 years or more on ultra-long mortgage deals.
A typical five-year fixed deal currently has an interest rate of 1.95%, according to comparethemarket.
That would mean monthly repayments of £870, adding up to £10,440 a year.
The other benefit of locking into a fixed rate is that you’re protected from further interest rate rises.
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers sitting on a variable rate may want to lock into a competitive fixed rate mortgage deal to protect themselves from rising interest rates, perhaps sooner rather than later.
“Fixing for longer may be a logical choice for peace of mind with mortgage payments when other household costs are increasing.”
How do I switch my mortgage to a better deal?
Switching your mortgage is relatively easy, but you should do a couple of checks first.
Make sure you’re not tied into a deal period as leaving early could mean a hefty penalty charge.
But this is not likely to be the case if you’re on the standard variable rate with your provider.
Shop around different mortgage lenders to find the best deal. A broker can help you to this if you’re not confident.
A mortgage calculator can help you work out your monthly repayments as well as the total amount you’ll repay over the term of your loan.
Lengthening your mortgage term, for example from 25 to 30 years, is another way to reduce monthly repayments.
However, this will usually mean you end up paying more in interest over the course of your mortgage, so it’s not always the best route.
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