Borrowers with variable-rate mortgages can now protect themselves against rate rises, using an interest-rate insurance policy. This week, a new online insurer called MarketGuard began selling policies that will pay out a monthly sum if mortgage rates rise by a specified amount.
Premiums are set according to the size of the mortgage and the rate insured. Four levels of rate rise can be insured against: a rise of more than 1.0 per cent, 1.5 per cent, 2.0 per cent or 2.5 per cent, and premiums get cheaper the higher the rate chosen. For example, protecting a £100,000 interest-only mortgage against a rate rise of more than 1 per cent costs £1,272 for a two-year policy, equivalent to £53 a month. But protecting the same mortgage against a rise of more than 2.5 per cent costs £336, equivalent to £14 a month.
