How to Afford your Mortgage if Interest Rates rise

The threat of interest rate rises can be something that mortgage owners dread. Knowing that your repayments could go up might be a big worry, especially if you are struggling to pay for them anyway. However, there are things that you might be able to do to allow you to be able to afford a mortgage rate rise and it is worth thinking about them and seeing what might work for you.

Fixed rate mortgage

If you have a fixed rate mortgage then you will protected from rate rises. These tend to be fixed for a short period of time, perhaps between one and five years. However, they will allow you to know that you will be paying the same amount each month during that time period. It does mean that you will not benefit form rate reductions though and there is a risk that you may end up paying more in interest over that fixed rate period than you would have had you had a variable rate mortgage. It is hard to calculate as predicting rate changes is difficult. However, it can give a feeling of security knowing that you will not have unpredictable repayments each month. If you find repayments a struggle, then knowing they will not go up can be really helpful.

However, you have to be careful as the fixed rate comes to an end. You may be tied in to stay with that lender and be put onto their variable rate. It could mean that you suddenly have an huge rise in how much you have to pay and you will not be able to swap to a different company without paying a large penalty which could be thousands of pounds. So, look carefully into all of the terms when you take on a mortgage like this.

Remortgaging

Remortgaging means swapping to a different lender. If you do this then you could find that your monthly repayments are less. Then even if the interest rate does go up, you will be more easily able to afford it.

However, you do need to be careful. You may find that you will have to pay an administration fee for setting up a new mortgage and there may be other charges as well. These could outweigh the benefit of paying less each month. You may also find that your current lender has charges if you want to leave and so you may have to pay two lots of charges. It is important to check all of this and make sure that you do all of the calculations carefully to work out whether it is worth you swapping to another lender.

Reducing spending

To make your mortgage payments more affordable then you could look at ways to reduce your spending. This might even be easier than you think. If you start with the expensive, regular things such as utility bills, insurance and contracts. You might be able to switch to cheaper companies without having to make a lot of effort and notice any difference at all. It can take a very small amount of time and make a big difference. In fact, if you start to compare prices on all things that you buy then you could make some switches to what you are buying or shop in cheaper places and save money. You may hardly notice much difference in how much you are buying and you may not even see a difference in quality but you will notice the savings that you are making. You might also want to consider cutting down the amount that you are buying. This can be the hardest thing to do as you can think that you are depriving yourself of things if you do this. However, we do all tend to buy more things than we need so there may be things that we can cut down on that we will not miss that much. It could be worth having an idea of what we spend our money on and then if we do need to cut back we will know where we can do this.

Earning more money

A way that we can have more money to spend on things such as mortgage interest without having to cut down our spending is to earn more money. This could also be an option for anyone that feels they cannot reduce their spending any more due to already sticking to a very tight budget. There are different ways that we can earn money and even something small could make up the extra money needed for the repayment.

You may just be thinking about conventional jobs and although these are a good idea, they may not be suitable for everyone. It could suit some people better to find a job where they can work from home or do flexible hours. There are online jobs that might provide this sort of work and are worth looking for although you do need to be wary of working online and make sure that you will get paid. Therefore, look for reviews to check that you are using a reputable site.

You may be able to sell some things to make money. These could be things that you own and no longer need, which will be limited but could provide you with a lump sum. You could also sell things that you make if you have a hobby where you do this sort of thing, perhaps if you paint, draw, sculpt, knit or sew.

Is Buying Interest Free a Good Idea?

There are some places which will offer us products with interest free interest. This can range from clothing catalogues, and furniture stores to window and conservatory sales and car dealerships. There are quite a few companies that could potentially offer it. It can look really attractive and many people use it; but is it a good idea? Initially it is hard to find any fault with it but

What is interest free credit?

Interest free credit allows you to have items without paying for them right away. Companies will offer this to try to encourage sales especially on larger items that may not otherwise be easily affordable. You will not pay more for the ticket price but you will be able to take longer to pay for the items. You will normally have a monthly amount that you are expected to pay and you may repay over a series of months or years.

Why use it?

This can help out in a number of ways. It can mean that you will be able to afford to get the item without having to apply for a loan or save up the money. You can spread the repayments which makes it more affordable as well. With no interest to pay, you will not be paying huge amounts of extra money in the same way that you would if you used a loan or if the credit was not interest free. It may allow you to purchase items that you feel you would never have been able to save up for, perhaps if you are not good at saving, for example.

Problems with it

Although this looks like a great deal there are problems that you need to be aware of. Firstly, because there is no interest of the item then it is often priced more highly to start with. If you compare the prices with other retailers you may find that you can buy the items from them, without the interest free credit at a cheaper price. It may therefore be better to save up for it and pay less when you do buy it.

If you miss a repayment then things can get expensive. You will find that you will then be charged interest and possibly fees as well. This could be dearer than a conventional loan as well so watch out for this. Make sure that you are aware of how much this will be. Also ensure that you are confident that you will have enough money to be able to afford all of the repayments. Think about the short term and the long term. It can be tempting to assume that if you can afford the repayments now, that you will always be able to afford them, but this may not be the case. The longer it takes to repay the loan, the more risk there is that something unexpected might happen in the future and you might not be able to make the repayments. Make sure that you look carefully at your current finances and see how much you will be able to afford to repay. Think about how well you are managing your bills and expenses now and whether you think that you will still be able to manage them when you have these repayments to cover as well.

You may also be tempted to buy things that you would not normally buy because you do not have to pay for them right away. If you do this for a lot of things you could find that you end up having lots of repayments and finding them difficult to manage. It can be very easy to think that it is okay to buy these things as you do not have to pay for the whole cost right away and ignore the fact that you will have to pay for them each month for a while. Finding the money to do this could mean that you will struggle to pay for other things. It is really important to therefore know exactly how much you will have to pay each month and work out whether you will be able to afford it.

Conclusion

So, although buying interest free can seem like a good idea you do need to be careful. You could still end up paying more for the goods and you will need to make sure that you can cover the monthly repayments. If you miss a repayment then it could end up being very expensive for you and so you may end up regretting your purchase. Make sure that you are also not paying significantly more for the item than you would if you bought it outright from a different place. Also make sure that you do not buy items that you do not really need just because they have interest free credit.