In 2006, our fixed-rate time limit ended and we once again had incentive to shop around. This time, my husband secured a new, interest-only mortgage after just a few simple phone calls. Our monthly payments would be even lower than before, though with this type of loan we would not be reducing the principal. Yet seeing that most mortgages are interest-only for the first few years anyway, it seemed a good option. And when we learned that the two-year fixed rate was just 4.59 percent, it seemed too good to be true.
Turns out it was.
This past February, Northern Rock - a bank that at the time accounted for one in five British mortgages, including ours - had to be bailed out by the government because it over-leveraged. The bank's demise left us staring at a whopping 6.8 percent interest rate if we didn't refinance by June. That meant our monthly mortgage payment would increase by more than a third.
Still, in spite of the difficult economic climate, we felt pretty smug about finding a new lender. My husband had just started a new and well-paid job; my freelance writing business was going strong; we had some savings in the U.S. stock market; and we only needed to cover half the value of our house.
