If you’re worried about the effect rising interest rates could have on your mortgage payments, then it may be time to look at your finances and see if a long-term fixed rate deal could give you peace of mind and financial security in the coming years.

An end to historically low mortgage rates?

Homeowners taking out mortgages in recent years have benefited from rock-bottom rates. The Bank of England base rate has remained at 0.5 percent or under for the past nine years but in the final quarter of 2017,there were the first indications that things were about to change. The Bank base rate was increased for the first time in a decade from its historic low-point of 0.25 percent back up to 0.5 per cent.

It’s widely anticipated that the Bank of England’s monetary policy committee will raise the base rate again at its meeting this month. If,as predicted, it increases to 0.75 percent, this would mean a homeowner with atypical mortgage of £175,000 would be paying £44 a month more than a year ago.

Some mortgage lenders have already begun to raise rates in anticipation of the increase. The average two-year fixed rate deal has risen from 2.21 per cent to 2.48 per cent since last October and rates are unlikely to be coming back down.

Although the recent slowdown in inflation may persuade the Bank of England to delay the rise in the base rate, it is still a matter of when, not if, rates increase.

Get the benefits of interest rate rises without the worry

Rising interest rates aren’t necessarily a bad thing. While mortgage rates have been historically low recently, so have the rates on savings accounts. If you’re locked into a low-rate mortgage deal and savings accounts start offering better rates, the interest rate rise could leave you better off.

But if you’re on a variable rate, tracker or interest-only mortgage, now is the time to future-proof your mortgage. Although you may be able to afford to pay a bit extra in the short term, you also need to consider the potential for further increases in the future. Switching to a fixed term deal may up your monthly payments now but over a five-year period, you could end up saving hundreds if not thousands of pounds. Even better, you won’t be worrying every time rumours of another rise reach your ears.

If you’re one of the 1.67 million people on interest-only mortgages, the impact could be even more significant, particularly if you’re approaching the age at which mortgage providers may refuse to extend your mortgage term. Whatever your age, if you have or are looking at an interest-only mortgage, you need to have a strategy to pay off the capital owed. If you think you may struggle to pay your mortgage off in time, seek independent financial advice to see what options are available to you.

Which fixed-rate mortgage period is best?

Two-year fixed deals remain the most popular due to the lower cost, but we are seeing an increasing demand for five-year fixed rates from homeowners. Although two-year deals offer a bit more flexibility, a longer term plan might create more stability. The right term for you will depend on your own personal circumstances.

The more equity you have in your home, the better the rate you’ll be able to get. So, if you’re looking for a mortgage with a high loan-to-value with a view to paying off a chunk of your loan in the near future, you may be better off opting for a two-year deal. This will also be the best option if you’re likely to be moving soon. While some mortgages are portable and can be transferred to a new property, this isn’t always straightforward, and you could end up worse off.

For most people who are planning to stay put in their home,a five-year fixed mortgage will give you a good rate with the added security of being able to plan your future finances. Ten-year fixed rate deals are also available, but they’re more expensive and often carry high early redemption charges.

What if you’realready on a fixed rate mortgage?

If you’re currently locked into a fixed rate mortgage then the decision is a bit more difficult, and you’ll need to balance the costs of exiting your current deal against the unknown factor of future interest rate rises. Some lenders will allow you to lock into a rate up to six months in advance, so if you’re approaching the end of a fixed rate term it’s worth acting now to see if you can secure a good deal before rates go up.