There have been increasing rumblings that we may see interest rates rise before the year is out whilst others are pointing to early 2016, either way it’ll be the first upward move in interest rates since July 2007.
The increases are likely to be in small steps of 0.25% every few months but whether you are a borrower or a saver it will increasingly have an impact on your finances.
Many people will have forgotten what sort of impact this could have on their finances, so here are a few pointers just to give you an idea of what may be around the corner for you.
Mortgage borrowers who don’t have the safety net of a fixed rate deal will be the ones fearing a rate rise the most, with the extra cost dependent on both the amount borrowed and the term of the mortgage.
For example someone with a £250,000 home loan over 20 years will pay an extra £128 per month if rates were to increase by 1% whereas a borrower with £350,000 outstanding will have to find an additional £179 per month from the household budget.
For those with credit card borrowing again the level of extra interest will depend on how much you owe, but for a £1,500 balance with your rate being increased from 18.9% to 19.9% you’ll pay £1.24 extra per month but if you have £7,000 on your plastic the same 1% increase will cost £5.83 per month more.
If you’re a saver a 1% hike will give you an extra £120 per annum (after 20% tax) on a £15,000 savings pot – UK savers will be yearning for that sort of hike and more after enduring a savings drought for what must seem like an eternity.
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