If you’ve already got a mortgage, or are just about to take one out, you may be wondering what impact a change in interest rates could have. Whilst interest rates are notoriously difficult to forecast, it can be useful to understand what would happen to your payments if rates do change in the future.
Mortgage interest rate calculator
Our mortgage interest rates calculator will help you work out how changes in interest rates affect your monthly mortgage payments and understand the impact it could have on your finances. This is especially relevant if you have, or are thinking about taking out, a variable rate mortgage.
What will happen if interest rates rise or fall?
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How to use the calculator
To use our mortgage interest calculator, simply enter a few details about your mortgage. You’ll need to know your loan amount and your mortgage term. We’ve set the current interest rate and predicted change to rates we think are realistic, but you can change this to suit you. If you have a repayment mortgage select ‘repayment mortgage’ for the mortgage type, then hit ‘calculate’ and we’ll do the hard work for you to find out how much your monthly repayments are likely to change. If you want to use it as an interest only mortgage calculator, select the interest only option for mortgage type. Again, we’ll use our data to predict how much your monthly payments will change.
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Learn moreWhy do interest rates change?
The Bank of England sets the base rate for the UK and usually it’s reviewed each month. Although banks don’t need to follow the base rate, it does tend to be reflected in mortgage interest rates, typically from the month following any change.
As a rule of thumb, when the base rate is higher, interest rates on mortgages tend to be higher and when the base rate is lower, mortgage interest rates are also often lower.
What’s the impact of a base rate change on my mortgage?
When the base rate changes, the impact you’ll see depends on what type of mortgage you have. Tracker rate mortgages are usually linked to the Bank of England base rate - so your mortgage payments will drop in line with the base rate if it reduces. If the base rate rises, you’ll see a corresponding increase in your mortgage repayments. If you choose this type of mortgage, you should be sure that you have the flexibility in your monthly income to account for fluctuations in your mortgage repayments.
If you’re on a discount or standard variable rate mortgage, it’s likely that when the base rate rises, you’ll see an increase in your mortgage payments too, but the specific amount is determined by your lender. The same applies if base rate decreases. Our interest only mortgage repayment calculator can give you a good idea of how much additional interest you might have to pay, but you should speak to your lender to confirm this.
For those on fixed rate mortgages, you’re only likely to see a change in your payments once you reach the end of your current deal. If rates have gone up whilst you’re tied into a mortgage deal, you may find that it’s more expensive to remortgage to a new rate.
What if you can’t afford an interest rise?
Once you’ve used our mortgage interest rates calculator, check your outgoings to see if there are any savings you could make. If you are concerned, it’s really important to contact your existing lender as soon as possible and they will support and set out the options available to you.
The other sensible option is to look at whether you’re on the best deal for your circ*mstances. If your current deal is about to come to an end, start looking at your options for switching to ensure you’re still on the best rate. Your current mortgage is likely to switch you to a standard variable rate when you come to the end of your current deal, which could be significantly higher than the best rates available on the market. Get in touch with our expert team at L&C who can help you to navigate the deals on offer and find the best one for your situation.
Even if your mortgage deal isn’t due to expire, it’s still worth looking at whether remortgaging could be the right option for you. It’s likely that you’ll have to pay early repayment charges (ERCs) to exit your deal early, but it may still be more cost-effective to switch, depending on how much your repayments are due to go up by and what rates are currently available.
FAQs
What happens to mortgages if interest rates go up?
When the Bank of England puts its base rate up, it generally makes borrowing more expensive. For most homeowners, that will mean your mortgage becomes more expensive - but whether you immediately feel the impact depends on the type of mortgage you have. If you’ve got a fixed rate mortgage, you won’t see any changes until the end of your fixed rate deal, whilst if you have a variable rate mortgage, you will see your monthly payments rise.
Your lender will confirm whether an increase in interest rates will have an impact on your mortgage, and what your new monthly payments will cost, typically with 14 days notice.
What is the current interest rate on mortgages?
There are thousands of mortgage deals available at any one time, so the current interest rate will depend on lots of different things; for example the amount of deposit you have, whether it’s a buy to let mortgage, whether you want to fix your rate, pay any lender fees and so on.
The best way to see what rates are available to you today is to use our Online Mortgage Finder which will check which deals you’ll qualify for.
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