What does an interest rate increase mean for your mortgage?

MILLIONS of homeowners are facing increased mortgage payments if the rate hike is confirmed today.

According to analysts, the Bank of England will raise interest rates from 0.25% to 0.5%.

Rising interest rates will affect borrowing costs, including mortgages


Rising interest rates will affect borrowing costs, including mortgagesCredit: Alamy

It comes after the central bank raised interest rates from 0.1% to 0.25% in December and some experts think they could hit 1.25% by the end of 2022.

The decision to raise interest rates was in response to Inflation soarsmeasure the cost of living.

It is currently at a Highest in 30 years after being motivated by increase in energy and food prices.

Rising interest rates will help reduce inflation.

This move will increase borrowing costs, which means consumers have less money to spend.

This then reduces demand for goods and services, which in turn drives prices lower.

But it can also have an impact on mortgage repayment ratedepending on the type of loan you have and when your transaction closes.

Homeowners with mortgages that keep an eye on exchange rates, which are linked to the Bank of England’s prime rate, are likely to see an immediate increase if rates are raised.

If you’re using a standard variable-rate mortgage, you’ll likely be hit by an increased rate of return.

Your lender will decide that amount so it can be more or less than the Bank of England increase.

Borrowers of a fixed-rate mortgage won’t notice an immediate increase, but they may suffer when their current transaction closes.

The increase could make it more expensive to buy back future mortgages.

You can find out what type of mortgage you have by checking the terms and conditions of your original agreement.

An increase in interest rates will have a impact on other forms of borrowingtoo.

If you have Credit card debt or overdraft, you may be charged additional interest.

But all is not bad news as savers can earn more interest on their variable rate accounts and Cash Isas.

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