UK Property Market

Safeguard your mortgage from interest rate surges

As the Bank of England has indicated that interest rates are likely to increase next year, here are some tips on protecting your mortgage from interest rate rises in the future.

One solution is to invest in mortgage insurance. For anyone with a mortgage over £500,000, the Interest Rate Protector will pay for a portion of the repayments on your mortgage when interest rates increase above a certain threshold, thus avoiding debt problems. If you decide to pay for five years worth of protection on your mortgage you will need to pay a premium of roughly £17,500 which will cap the Bank of England’s base rate to 3 percent.

However, this is assuming you are comfortable in predicting when the interest rates are likely to rise. Some experts predict that they will rise by January 2011, while others are not expecting it to happen until later on next year. If you are feeling confident in the long term financial outlook then pursuing mortgage insurance may be a better option than a fixed-rate, five year mortgage

You could also choose a capped-rate mortgage, currently offered by Coventry Building Society. It has introduced a 4.99 percent cap based on a capped tracker mortgage for three years, running at 2.5 percent higher than the base rate. You would pay 3 percent and, assuming interest rates increase, you would not have to pay above the 4.99 percent cap for the length of your mortgage.

Additionally, if you possess £17,500 that you could use for mortgage insurance then you could also consider placing this money in a savings account, using the highest interest rate possible. You could then pay any additional mortgage interest when rates start to rise.

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The Home Equity Release Process

I have been getting a lot of questions about this lately, so here it is broken down. The equity release process goes through the following steps –

1. You will be offered a free personal home consultation that will provide you with all the necessary information about the schemes and will also answer your queries. They will also evaluate your choice and accordingly guide you.

2. They will then go about researching the perfect schemes for you. ( Week 1)

3. In the second week, the consultants will visit you and give you a brief synopsis of the scheme ideal for you. If you give your consent, you will have to fill some important documents. (Week 2)

4. The company will then process your application and will pass it on to the concerned equity release provider. (Week2)

5. The provider of the equity release will then send a local independent valuer to your house to make an independent evaluation of your house. (Week 2-3)

6. You will then receive an offer from the lender which will then be checked by the solicitor. (Week 3-4) The offer will contain the following- 1) The amount the lender is willing to offer. 2) In case of drawdown lifetime mortgage, it will specify the amount of money you can withdraw over a period of time. This will be based on your age or the independent evaluation made by the valuer.

7. Once the solicitor approves of the plan, you will have to visit the company to give your final confirmation. They will then sign the required certificate to the lender to release the amount. (Week 6-7) or (Week 9-10 for home reversion plan)

8. The solicitor then receives the amount. He uses a part of it to pay off the charge on your mortgages and will also deduct the company’s as well as his own commission. The balance that you receive is for yourself. (Week6-8) or (Week 10-12 for home reversion plan)

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