Do I have to remortgage now even though my term has not ended? | Mortgages



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Q I just entered the last year of my five year fixed rate mortgage (it ends in January 2023). With interest rates likely to rise, is it worth remortgage now and take the 1% prepayment hit over the past year to get a good deal, or should I wait for the end of fixed term?

I owe around £ 90,000 on a house worth around £ 220,000 and my current rate is 2.14%.
CL

A It might be worth remortgage now, but a lot depends on whether the potential savings you could make would cover the costs of switching.

In addition to your current lender’s prepayment charge of £ 900, these include the new lender’s appraisal fee, legal fees (if the new lender doesn’t cover them), and arrangement fees – usually from around £ 1,000 – to subscribe to the new fixed rate offer.

The sums don’t seem to add up, even if you go for the cheapest offer currently on the market. Reducing your current interest rate by a percentage point could mean an annual savings of just under £ 500, which is nowhere near enough to cover your switching costs.

On the plus side, because your mortgage is less than 60% of your home’s value, the rates available at the end of your current fixed-rate contract may not be as bad as you might think. For example, if the best rates currently available were to increase by one percentage point by January 2023, you would consider 2.24% for a two-year fix, 2.39% fixed over three years and 2.36% fixed on five.

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