Wednesday, 2 February 2011

How to protect your home

 The first issue troubled borrowers might consider is whether they can find a sum of money to use to pay off a proportion of the mortgage to bring it in line with the 75% LTV average. "Is there any money a relative could help with ,could your relatives help you out with money. Are there savings you have that you don't need access to? By reducing the borrowings you can shop around better and find a cheaper rate. It's that simple.

Another solution could be to start managing your finances now as if the costs of your mortgage had gone up already. Move a sum each month into a savings account. Sometimes it can just mean getting used to the higher outgoings and this way you still have access to those extra funds, if needed.

 A succession of interest rate rises could see a fixed rate of 6%, which might look unattractive now but appear "incredibly low" in a few year's time. Many independent mortgage brokers are urging borrowers to take out a fixed-rate mortgage as soon as possible because providers have already begun to factor in future interest rate rises and have raised the price of their fixed-term products.

Fixed rates have been climbing, but they are still the right choice for those who are fearful of how they will deal with a rise in mortgage costs. They help protect against any increase in interest rates but will also bring some stability to the monthly budget at a time when inflation continues to push up other household bills."
A two-year fixed rates can be found with rates a little below 3%. Santander offers a rate of 2.65% at 60% LTV but with a hefty £1,995 fee. For longer-term security, RBS offers a five-year fix at 3.95% with a £699 fee but only up to 50% LTV. Yorkshire Building Society offers a five-year fix at 3.99% to 60% LTV, with a £1,495 fee.

Those "with more slack in their monthly budget" (especially those who believe the recent contraction in the economy will stall the interest rate rises) may wish to opt for the initially lower variable rates. HSBC offers a lifetime tracker at 1.79% above base rate to 60% LTV with no fee.

Among other product options,  capped trackers (which track base rate but have a ceiling on how high they could go) such as Coventry Building Society's three-year tracker at 2.49% above base rate up to 75% LTV with a £999 fee and capped at 3.99%.

Lenders like Nationwide, Woolwich and RBS also offer the option to switch out of a tracker rate to a fix without penalty. Finally, those that do stick with a variable rate would be well advised to prepare for rate rises by taking advantage of the low rates now to overpay their mortgage, cutting the balance and making life easier when rates start to lift.

Find out how your mortgage payments will vary if the rate rises For independent mortgage advice

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