By: Matthew Bourne
If there's one thing that homeowners with a variable rates home loan fear most it is hearing that their loan company has increased their home loan interest rates. Home loan interest rates tend to fluctuate in line with the base interest rate set by the Bank of England. The base interest rate is the minimum amount of interest banks charge for lending money, and it is governed by many economic factors, not least inflation targets.
When the Bank of England increases base interest rates, home loan companies decide whether to absorb the cost of the rates increase or pass the rates increase on to homeowners with a home loan. Quite often, home loan companies employ the latter scenario, increasing home loan interest rates to compensate for the rise in base interest rates.
Between 1989 and 2003 interest rates on a home loan have fallen dramatically. During the housing boom of the late 1980s, home loan interest rates reached a staggering 15%. By 2003, interest rates on a home loan were hovering at around 3.5% - 4%. During the last twelve months, interest rates on a home loan have increased slightly to reflect the changing base interest rates, but are still at between 4% and 5.5%. In November 2004, interest rates analysts were hinting that the base interest rate had reached its peak, and that the interest rates for a home loan would now plateau. So far, this home loan rates prediction seems to be holding true.
Homeowners with a home loan though do not have to suffer every time interest rates on their home loan increase. In fact, if a home loan is well managed the worst of any interest rates rises can be delayed or even avoided altogether. One way to delay interest rates rises on a home loan is to elect for a variable rates mortgage with an annual review. This allows you to save up for potential home interest rates rises over a twelve-month period, softening the impact of any interest rates rises.
Another way to lower interest rates on a home loan is to regularly re-mortgage your home. This way you can choose a home loan company that has the most competitive home loan interest rates at the time. This may save you hundreds of pounds each year on your home loan repayments.
Finally, home owners with a variable interest rates home loan should consider moving to a fixed interest rates home loan. A fixed rates home loan protects against upward movement of interest rates for the period of the fixed interest rates loan. A three-year fixed rates home loan taken in 2003 will have shielded home owners from all of the interest rates increases on a mortgage loan in 2004, and still have the potential to do the same in 2005 and 2006.
