Skip to main content Accessibility Statement
House on street

Interest rates - What homeowners can do NOW to beat a rise

The base interest rate has been at 0.25% for close to a year, and it was at 0.5% for the seven years beforehand. So it's been a long time to have such low rates - good news for many borrowers. But there's renewed speculation that interest rates could start to go up. And when the rates do, the changes will affect anyone with a mortgage.

It’s impossible to know exactly when this will happen (predictions change from one month to the next) or by how much - but there are ways to get ready.

1.    Find out how much an interest rate rise will cost you

If you're on a variable rate mortgage or about to switch to one, it’s worth looking at what the changes would mean to your mortgage rate and monthly payment.

Check with your lender if you’re unsure. You can also use our Mortgage calculator to work these figures out. In ‘price of property’ enter how much you have left to pay on your mortgage, and put zero in the deposit box. Then use the sliders to decrease the term to the number of years you have left to pay, and increase the interest rate. You’ll see the amount you’d pay each month change up on the top left hand side.

2.    See how much you can afford

A budget will show what money you have coming in, what money is going out, and most importantly, how much you have left at the end. Our Budget planner tool will help you do all of this.

If increased mortgage payments mean you go from managing ok to struggling to get by, use the budget to look for areas you can cut back. Are you spending a big amount each month on travel? Do you think you can spend less when out shopping?

Our mortgage affordability calculator will give you an idea of how much you can borrow.

3.    Think about overpaying

If you have some spare savings, it’s worth seeing if you can make any overpayments to your mortgage without incurring a penalty, so check with your lender. You can do this in a lump sum, or just by increasing the monthly payments.

Overpaying £100 a month on a £120,000, 25-year mortgage charging 4% will save you £15,000 in interest payments. It will also shave five years off your mortgage, clearing it in just 20 years. Doing this before rates rise means you have a smaller mortgage to be charged interest on, so you’ll repay less overall.

However, there are reasons why it’s not always the best option, which you can read about in our Should you pay off your mortgage early article.

4.    Explore a new mortgage deal

It’s worth looking into a new mortgage deal to see if you can take advantage of current rates. For certainty you could lock into a rate with a fix, though remember these often come with an arrangement fee. Or you could stick with a variable if that works out more cost effective.

If your deal is coming to an end, the earlier you prepare the better. Speak to your lender as a starting point. You may need to move lenders to get the best deal, which means you might need to have an affordability assessment.

If your home value has increased, it may mean your loan-to-value (LTV) ratio has also decreased. This could mean you can choose from more lenders and lower rates. LTV and more remortgaging tips are explained in our remortgaging to cut costs guide.

What do you think?

We really want you to share your views, but please remember to be nice ☺
All fields are required. Check out our full commenting guidelines

By clicking on 'Post Comment', you're agreeing to our Commenting Policy

  • Dean jones / 22 September 2015

    Ref this in the article " If your home value has increased, it may mean your loan-to-value (LTV) ratio has also increased" should the LTV decrease in these conditions?
    The article is very informative

  • KDallas / 8 September 2015

    Andy, we need help we can't overpay as we can't afford it currently, int rise will kill us, we are trapped on interest only between 2 lenders on high LTV, we can't remortgage - we are destined for financial failure, we really need someone to help
    ** ADMIN **
    Hi Karen, you can contact our advice line on 0300 500 5000 where someone will be able to help

  • jen / 31 August 2015

    I have been on interest only mortgage for years now and have only 5 years left to pay it off which I cant,so wanted to extend the mortgage term to 10 years so a 10year fixed rate would be good for me so I know what I would be paying,but could I extend the term and who with,I am with Lloyds at present and have a £75,000mortgage still owing,if I cant extend I could lose the house