Mortgage expert shares tips to ‘access lower rates’ and ‘reduce’ monthly repayments | Personal Finance | Finance

Millions of homeowners could be at risk of defaulting on their mortgages due to higher interest rates this year, according to new research from Moneyhub Decisioning.

Moneyhub’s research found that a quarter (26 percent) of homeowners surveyed with a mortgage said that a further interest rate rise would mean they won’t be able to afford their mortgage payments.

In addition, a third (35 percent) of homeowners with a mortgage said they were concerned that they will not be able to afford their mortgage when they remortgage due to rising rates.

However, those approaching the end of their current mortgage deal and are looking to remortgage have been urged not to lose hope.

Perry Graves, mortgage expert at Tembo told “There are ways to access lower interest rates and reduce your monthly repayments.”

READ MORE: Mortgage crisis could be solved by 25-year fixed rates, says Michael Gove

Extend the mortgage term

When it comes to remortgaging, Mr Graves said people can choose to change their mortgage so it has a longer term.

He said: “If you currently have a 25-year mortgage, you could extend it to a 30 or 35-year mortgage as long as you meet the lender’s age requirements. Some lenders can cap the maximum age at 70 or 75 or 80 – it’s not one size fits all.

“Extending your mortgage term allows you to pay less each month, but over a longer period of time. However, because you’ll be paying off your mortgage for longer, you’ll pay more interest overall.”

Although, extending to a longer-term deal doesn’t mean an individual is stuck with it until the end of their mortgage.

Mr Graves said: “You could switch to a longer-term now, then remortgage to a shorter term later down the line if you meet requirements at the time.”

Consider switching to an interest-only mortgage

Moving to an interest-only mortgage can be used as a tool to keep repayments affordable without having to move house.

However, Mr Graves said: “It’s best to use this as a short-term solution, otherwise you will have to pay your remaining mortgage balance at the end of your mortgage term. This is heavily dependent on income and the amount of equity in the property.

“You’ll also need a suitable repayment vehicle to repay the interest-only element at the end of the term.”

Improve your credit rating

Having a low credit rating tends to limit mortgage options and could leave a person at risk to being offered much higher rates.

Mr Graves said: “Lenders often see those with poor credit as higher risk. By improving your score in the run-up to your remortgage, you could get access to better rates.”

Add a guarantor to your mortgage

By adding a loved one or friend to a mortgage as a guarantor, people can “increase” their affordability.

Mr Graves said: “One of the issues that people are having at the moment is their current affordability might not be enough to cover their existing mortgage.

This generally happens for people who bought with smaller deposits and whose financial position may have changed. For example, they might now have childcare costs impacting their affordability.”

Pay off a lump sum

Depending on the loan-to-value (LTV) percentage of the mortgage, Mr Graves said it could be worthwhile making a lump sum overpayment to get access to lower rates.

He added: “Calculating the difference between interest rate/monthly payment/capital outlay is key.”

Worrying about losing a home is a huge concern to have, however, Mr Graves noted: “It’s so important to not bury your head in the sand. Talk to your mortgage lender to see what options there are – they have a legal obligation to help you and will only use repossession as a last resort.”

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