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.