Fixed rate mortgage renewal survival guide

Many homeowners expect their mortgages to come up for renewal in the next year.  They sweat blood each time the interest rates increase.   Mortgage borrowers are already being warned to prepare for a substantial increase in their monthly payments.

Estimates claim that almost 6m people will experience an increase in their monthly mortgage payments this year.

Experts at L&C expect thousands of fixed-rate borrowers to face significant increases in their mortgage repayments after their current mortgage deals come to an end, mainly because the mortgage industry has changed over the last few years.

Standard variable rate deals use to be a cheaper alternative, because they floated with the market. Now they are substantially more expensive than the fixed-rate options available in the past.  Even if you opt for another, short term, fixed rate option, it may not be available.  Many lenders have stopped offering competitive fixed-rate mortgages.

Prior to the interest rate increase, financial institutions and building societies stopped people from buying cheap fixed rate options.  They pulled the products from the market, in response to the overwhelming demand for fixed rate products.  Many financial institutions have made claims in the media that the demand for fixed rate products left them no option but to stop providing the products.

James Cotton of L&C advises borrowers to hunt for the best fixed-rate deals to avoid being forced into unfavourable variable rates.

"The payment shock for many borrowers will be substantial when their deals to come an end," commented Mr. Cotton. "The advice is simple: see what new deal your lender is willing to offer and shop around elsewhere.

"Plan ahead and don’t leave it until you’re already paying standard variable rate," he added.

Many people wait until their mortgage has expired before doing anything about it. Most won’t do anything about it.  They will just sign and/or let everything float through, and wait until the first automatic withdrawal to see how much they were hit. 

The Council of Mortgage Lenders reports that a record number of first-time buyers – 87 per cent – took out fixed rate loans.  The withdrawn deals will be replaced by fixed rate offers with higher interest rates, or with high arrangement fees to make up the lender’s profits.

This is a valid warning as we’ve seen the financial industry do this before. They play with the APR, making it look like the mortgage deal has a great interest rate, when in fact, calculating the total paid at the end of the mortgage, proves that you didn’t get the deal you expected.

The broker fees, administration fees, set up fees, and other charges banks apply to mortgages are also open to interpretation.  There is already a vast difference in the amount charged between the different financial companies.  The closing fee, and early repayment fee is also subject to the bank’s whims. 

Most homeowners with mortgages coming up for renewal are warned to expect a new type of agreement. The traditional mortgage is dead.  Expecting the bank to treat you fairly like they did ten, or five, years ago is a ‘fool’s folly.’ 

James Cotton, employed at broker London & Country, told The Independent that those looking for mortgages look at other options than a fixed-rate mortgage like purchasing a "discounted variable or tracker deal instead".

He said:  "There is a feeling we are nearing the top of the current interest rate cycle, which means you will be better off should rates then start to fall," Mr.  Cotton stated.

This is where most people run into problems when they need to renew their mortgages. Someone is always predicting a down turn, and someone else is always predicting an upturn in interest rates.

There are alternatives to signing up for a high interest mortgage.  Of course, selling and renting is always an option.  The people who expect a housing crash are gambling on this. They sold high, pay rent, and then when the market crashes and thousands of homes hit the market, these people hope to take their pick. 

At first glance that may sound ludicrous – look at all the money wasted on rent. Of course, if you deduct what you’d pay in interest over the time you rent, and expenses that the landlord now pays, you really can come out ahead.

Of course, this route is only for those who are seriously trying to build wealth, and it will only work for people who have already displayed ample wealth building and saving skills – which eliminates most of us.

Face it, what good is selling your home and banking ₤30 000 if you are only going to spend it? You should have just ’sucked it up’ and paid the interest, at least you’d still have a home.

Some people are turning to co-ops which let people lend and borrow independent of the banks.  This isn’t such a far stretch, as the banks control very little of the world’s credit.  Most of it filters through investments and annuities.

The rest of us might consider lengthening the term. This can be done over a couple of years without wasting too much money on higher interest rates.

The important thing is to realize that there are options available.  A free visit to Consumer Credit Counselling Service or Citizens Advice can save you hundreds of pounds in interest overpayments within a few short years.