GOING DOWN
Mortgage rate cut calculator: How much will my repayments go down?
FALLING interest rates are a boon for mortgage holders who see their interest payments drop.
The Bank of England (BoE) cut the base rate in August for the first time in four years after inflation slowed to 2%.
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The base rate is what the BoE charges to smaller high street banks when they borrow money.
Any rise or fall in the base rate is usually reflected in mortgages, savings and pensions annuity rates.
But here's everything you need to know about how interest rates impact your mortgage payments, and why they are going down.
We've also got information below on what a mortgage repayment calculator is.
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Are mortgage rates going down?
The BoE uses the base rate as a lever to control inflation, but any rise or fall in the rate and it can see home loan rates go up or down.
The BoE cut the base rate from 5.25% to 5% in August, with a number of lenders slashing mortgage rates shortly before and after.
Whether they will go down more is dependant on what the BoE does with the base rate for the rest of the year.
Either way, mortgage rates are unlikely to ever return to pre-pandemic levels.
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Nick Mendes, from John Charcol, told The Sun: "We are unlikely to see the days of 1% or 2% mortgage rates again.
"It’s important to plan and budget accordingly, considering more sustainable and realistic interest rates moving forward, to avoid delaying a purchase or ultimately setting yourself up for disappointment."
The Sun's James Flanders explains how to find the best deal on your mortgage
However, Nick added that mortgage rates are expected to fall further into next year.
"Borrowers can expect to secure a five-year fixed rate as low as 3.5% by the first quarter of next year.
"Conversely, those with a higher loan-to-value, around 80%, may face slightly higher rates.
"The exact figure will depend on market conditions, but it is likely to hover around the 4% mark."
Moneyfacts said on August 1 the average five-year fixed residential mortgage was 5.77%.
How much will my mortgage go down?
There are three different types of mortgages - tracker, standard variable rate (SVR) and fixed-term.
Tracker mortgages are closely linked to the base rate, and go up or down depending on what happens to it.
In most cases, they don't exactly match the base rate, but are set at a level just above it.
A standard variable rate mortgage goes up or down depending on what the lender decides.
However, SVR's tend to fall when the BoE base rate does, although not by a set amount.
Meanwhile, under a fixed-term mortgage, your lender sets a rate which then stays the same for the length of the agreed term.
While fixed-term mortgages can be useful if you want to know how much to budget each month, you can end up paying more if you lock in at a higher rate and the BoE base rate falls.
That said, if you lock in a low rate, it can cushion you from the base rate rising.
Mortgage calculators
There are a number of websites with calculators that help you work out how much your monthly mortgage repayments might go down by depending on changes in interest rates.
L&C Mortgages' calculator lets you work out what your payments will decrease to based on your loan amount, mortgage type, term length, current rate and what it will change to.
Moneysavingexpert.com also has a useful calculator which you can use to track how payments can change.
A number of banks and building societies have their own interest rate calculators which you can find on their websites.
Here's a list of a few that do:
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- Nationwide
- Barclays
- NatWest
- Bradford and Bingley
There are a number of ways you can boost your chances of getting the best mortgage deal though.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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