Can My Lender Increase My Mortgage Payments?
The last thing you want is a nasty surprise and your lender telling you that your monthly payments have increased, but unless you know exactly what it is you have signed up for, there is a risk it could happen.
These questions should help you calculate whether you are at risk of your mortgage costs going up.
1) What Mortgage Rate Are You On?
- A) I have a one, two, three or five year tracker rate
- B) I am on my lender’s Standard Variable Rate
- C) I have either a one, two, three or five year fixed rate
2) What Type of Mortgage Do You Have?
- A) I have a specialist adverse credit mortgage
- B) I’m on an interest only deal
- C) I have a standard capital repayment mortgage
3) How Much Did You Borrow?
- A) I borrowed 100% LTV plus
- B) I borrowed just under 90% LTV
- C) Around 70% LTV
4) Have Your Circumstances Changed Since Taking Out the Mortgage?
- A) My house has gone down considerably in value since I last remortgaged
- B) My circumstances have not changed
- C) I now want my partner’s name on the mortgage
Mostly A – You Could Be At RiskMortgage lenders can only change your mortgage rate if they have just cause do so. Many people get a surprise when a letter turns up saying their monthly mortgage payments are going up.
But if you have a tracker rate that tracks the Bank of England base rate your rate will go up every time the Bank of England increases its base rate – which it decides on one a month. Similarly, if it goes down you will also benefit.
Beware that if you take out a tracker rate over three years you are tied into that rate for that period, so you should calculate and factor in for the interest rate going up and check you can still afford your payments.
If you have a mortgage for borrowers with adverse credit, or over 100% of the property’s value, you should brace yourself for an increase in your rate at some point. After your initial rate ends you will either have to remortgage elsewhere or switch onto your lender’s SVR. You will find it hard to switch elsewhere because you are a specialist case. Your only option will be to convert to your lender’s SVR, which will be a higher rate.
If your house has gone down in value when you come to remortgage this could also mean you pay a higher rate.
Mostly B – On Steady GroundIf you are on your lender’s SVR, this will work in a similar way to a tracker rate. Not all lenders will increase their SVR in line with the Bank base rate but a number of them will. Some also have written into their mortgage contract that they will not under any circumstances increase their SVR, but you will need to check your contract for this.
If you are only paying the interest back on your mortgage, it is inevitable that your payments will increase at some point. This doesn’t necessarily mean your lender will force you to pay more, but they will encourage it and won’t let you stay on interest only forever. If you borrowed at a high LTV you might also find when you come to remortgage that a lender will now offer higher rates for higher LTVs than they did a few years ago.
Mostly C- No Need to WorryIf you are on a fixed rate mortgage you have the security of knowing that your mortgage lender cannot increase your mortgage payments by even a penny as long as you are still fixed into the deal. For example, if you have taken out a three year fixed rate deal a lender will only be able to increase your payments when this comes to an end and you revert onto their SVR.
If you want to add another name to the mortgage this will also work in your favour and when you remortgage your rate is likely to stay the same, or could even go down as the extra applicant is adding another wage to the equation.
It is important to make sure you know what you have signed up for with your mortgage contract. When you take out a mortgage you should read all of the small print and make sure should your payments go up, you wouldn’t be left in limbo and will be able to meet the added costs.