Switch if you can't stand the rate rise: your mortgage deal isn't set in stone

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The Independent Online

While homeowners are not likely to have been surprised by last week's quarter-point rise in the base rate to 4 per cent, they may still be wonder-ing if they need to take action.

But the message is not to panic. "Borrowers need to keep this [and further potential modest rises in the base rate this year] in context and not be overly concerned," says Ray Boulger at mortgage broker Charcol.

"The base rate is still very low in historic terms and is likely to remain so for the foreseeable future. The benefit of low mortgage rates is still there to be had. Borrowers may just have to be more alert and hunt out the best of the bunch."

While homeowners on fixed rates won't be affected by the interest rise and so don't need to take action, somebody with a typical £100,000 standard variable-rate (SVR) mortgage can expect to pay an extra £14.50 a month, says the Council of Mortgage Lenders.

If you are on your lender's SVR, you are already paying over the odds even before you suffer the effects of the latest rate rise. Which? magazine calculates that customers on SVRs could save an average £475 a year by remortgaging.

If you are thinking of switching, a fixed-rate mortgage may not be the cheapest bet as discounted and tracker rates currently appear more attractive. Make a note, though, of when the discount period ends so you can shop around for another deal to avoid going on to the lender's SVR.

"Most fixed rates look expen-sive as they are already priced to reflect the City's expect-ations of the base rate rising to 4.75 to 5 per cent over the next year," says Mr Boulger.

Charcol is offering a 2 per cent discount over two years, giving a current pay rate of 3.45 per cent. If you prefer slightly more security, Giraffe Mortgages has a 2 per cent discount until 31 March 2006 (current pay rate 3.79 per cent), which is also capped at 4.19 per cent. This means your mortgage rate can't rise above this level before 31 March 2006.

But if cash is tight and you want the added security of fixed repayments, Ben Thomp- son, director of independent adviser Clear Cut Mortgages, recommends waiting a couple of weeks before remortgaging to a fixed-rate deal.

"We have seen lenders pull their short-term fixed deals over the past week in expectation of a base rate rise," he says. "Some lenders are likely to come back in with lower rates on short-term deals as they fight to take pole position in the 'best buy' tables. There will be good deals out there over the coming weeks, so consumers should hold off until the dust settles."

If you incur big penalties for switching your mortgage, it might not be in your interests to do so. To find out, go to www.switchwithwhich.co.uk

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