OK, now you have a lovely new home and with it comes a lovely new mortgage. With the average mortgage advance standing at around £150,000 it’s a long-term commitment to repay a lot of money. The repayments also take a fair slice out of your monthly income.
What could go wrong with these financial arrangements and can you hedge your bets by insuring against the hazards? After all you have a family to protect.
Most somebodies would identify 5 main areas of concern, all of which boil down to your ability to maintain the mortgage repayments:
- Interest rates might increase and make the monthly repayments unaffordable
- You might loose your job
- You might be forced to take time off work through illness or accident
- You may become permanently unable to work through accident or very serious illness
- You could die before the mortgage is paid off.
The financial industry is packed with pretty shrewd somebodies so it’ll come as no surprise to learn that there are financial products to help with each of these dangers.
If you want to reduce the risk of interest rates rising to unaffordable levels, you should have discussed these matters with your mortgage adviser. He will then have told you Around “fixed” and “capped interest rate” mortgages. As the name implies, a fixed rate mortgage fixes the interest rate you give whilst with a “capped” mortgage, the lender agrees not to increase your interest rate above a pre-agreed level. Both types of mortgage revert to the standard variable rate after the fixed or capped period finishes which is typically after three or five years, depending on your lender.
