I get this question a lot: When is the right time to agree on a new mortgage rate if your current deal is coming to an end?

Hi, I am within 6 months of my current mortgage rate ending, and I can lock in a new one now and up to the point my current one ends.  Will interest rates come down a bit more?  How do I decide if now is the time!  Nervous and confused :(

The magic formula

Lol, no.  There isn't one.  There is no formula, tool or magic ball.  In the last year, predictions around which way the Monetary Policy Committee would vote about how many times they would reduce rates have been wrong almost across the board.  

There are reasons for that.  Inflation has not stabilised as much as originally thought; changes in government policies and so on influence how interest rates may change.  Some were even predicting they could go back up before inflation fell again, and now think they will go down.

You decide

So, what do you do?  Well, rather than trying to predict where interest rates will go, consider what it means to you today if you were to switch now.  You have given me little information, so let's assume a £200k mortgage over 25 years on a repayment basis.

1. Assume you pay 6% today, that is £1,288.60
2. Assume your new rate is 5%, which will be £1,169.18
3. That's a difference of £119.42

That's £119.42 more in your pocket today.  You could wait, and maybe the rate will drop a bit more before you need to decide.  Let's say it does and comes down to 4.75%.  That will increase your savings to £148.37 or an extra £28.95 each month.

But you need to be careful.  Just because the Bank of England rate does not change in the next few months does not mean your lender will not increase its rates.  So you could end up saving a bit less.

I can't guess any better than most right now whether rates will come down in the next few months.  I would like to think they will, but don't trust a guy with a blog.

So, weigh it up, do you lock in a rate today and know you will save £119.42 today (or whatever it is you will save based on your mortgage) or wait.  You decide.

Talk with your lender though.  Many lenders will allow you to lock in a rate today but it won't happen until your current rate expires.  If a cheaper rate comes along they may also allow you to switch again to that.  Always worth asking so you know what you options are.

Good luck :)