Fixed-rate mortgage deals come to an end

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by Kay Murchie

Many homeowners will experience a significant payment increase as their fixed rate mortgage deal comes to an end. Many signed up for these deals 2 years ago, when interest rates were much lower. An increase of £250 per month is likely on a £130,000 mortgage if they move to a variable rate – usually 7.5%.

Many had already stretched themselves to the limit to get onto the property ladder and will need to switch their mortgage so monthly repayments do not become unmanageable. At least 2 million will need to switch by the end of 2008 to steer clear of this significant rise.

A rising number of borrowers struggling with repayments are switching to interest-only loans. This will only benefit those who are disciplined. It will reduce your monthly payments but the loan will not be paid off. Another alternative is to extend the term of your mortgage to cut your monthly payments. However, both these options mean more interest will build over the long term.

Those looking to switch in the short-term also face the predicament of fixing their interest rate or choosing a tracker. Many analysts expect the base rate to hit 6% this year so a tracker may benefit some, especially if the interest rate comes back down in 2008.