How to avoid mortgage payment shock

1 What will happen?

If you don't act before or when your fixed-rate deal ends, you will automatically be transferred onto your lender's standard variable rate (SVR), which could be as high as 7.75%. If you had previously been paying the average fixed rate in 2005 of 4.49%, your monthly repayments on a £125,000 repayment mortgage would increase by £250 from £694 to £944.

2 What should I do?

Around three months before your mortgage deal ends, shop around to see what other lenders can offer you. However, if you don't have that much time, just start as soon as possible. It's worth speaking to your existing lender, but it's unlikely they will be able to offer you the best deal on the market. It is a good idea to speak to an FSA-regulated mortgage broker, they will help you find the right deal for you.

3 Type of deal

While fixed rates remain popular in securing the size of your monthly repayments, you can expect to pay more for the privilege now. But that doesn't mean a tracker mortgage is right for you. Speak to a mortgage broker to find out where the best deals are and which ones might be right for you.

4 Small print

While the rate on your mortgage will be important in determining the size of your monthly repayments, there are number of other factors to bear in mind. Consider whether you need a flexible product, which allows under and overpayments, in addition to arrangement fees, and penalties if you pay off your mortgage early. Good customer service is also a big factor.

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