Fixed rate mortgage misery?

If your fixed rate mortgage comes to an end this year you'll be one of the 1.5 million people re-mortgaging and you could be shocked at the effect interest rate increases will have on your wallet because you'll definately end up paying out a higher monthly amount.

Just 4 years ago you might have been lucky enough to get an interest rate under 4 per cent, in some cases end less, however the best fixed rate mortgages today are all over 5.5 per cent. The 100 per cent mortgage and 125 per cent mortgage, where lenders provide more money for you than the house is worth are not available any more either, so first time buyers will find it more difficult to get on the property ladder. Lenders are also tightening their lending criteria and so if you do not have a good credit rating you might be offered even higher interest rates because you are perceived as a higher risk to lenders.

It's not only mortgages that have been affected, interest rates on personal loans have increased and again lenders have tightened their lending criteria on loans and credit cards. With credit cards it's not so much that interest rates have increased but it will be harder to get your application accepted now and people looking transfer a balance from another credit card or loan will have to pay a handling fee. Sometimes when transferring a balance the new credit card company will allow you to transfer a smaller balance than you may have hoped for.

According to John Charcol in February this year 52 per cent of all mortgages taken out were fixed rates, in 2006 this figure was 42 per cent and the same period in 2007 was 69 per cent so you can see how interest rate rises affect borrowers.

There are two issues to look out for with fixed rate mortgages; firstly the interest rates are higher, like I said earlier a good average fixed rate mortgage deal will be in the region of 5.5 per cent. Secondly you also need to look out for the associated fees and charges with your mortgage, look at when these fees or charges are payable, i.e. upfront and ask if you can add any of the fees to the mortgage. For example if there is a £1,000 set up fee can this £1,000 be added to the amount you borrow?

Sometimes this is easier than trying to find an additional £1,000. I know I rarely have a spare £1,000 lying around! Sometimes these fees can be a percentage of the total amount your borrowing, typically around 1 or 2 per cent. The thing to bear in mind is that adding these fees to your mortgage can increase the cost of monthly repayments, you need to find out the difference and weigh up all your options.