Should I pay the repayment penalty to get a new mortgage deal? (Source: Which.co.uk)
Your current fixed mortgage deal might not be up for renewal anytime soon, but is it worth biting the bullet and paying the lender’s early redemption penalty to secure a new mortgage deal now? Last week the mortgage market fell into chaos as lenders started pushing their rates up and some lenders completely withdrew from the market. This shift in the market occurred as a result of the new government announcing tax cuts and the Bank of England increasing the base rate. The lenders, worried about rising inflation and base rate, increased their rates from an average of 2.5% to an average of 6% with other products creeping up to nearly 7%.
Should I Look At Getting A New Mortgage Deal Now?
With all of our clients that we help to secure a mortgage, we normally contact them six months before their fixed mortgage period is up for renewal. That way we can normally explore the options that they have, we can discuss any extra borrowing that our clients may need and can most importantly find them a new product that benefits them financially. Normally we would look to help our clients move to a new more competitive rate however, at the moment, getting a lower rate than you were on before is impossible. But our intentions and goals remain the same.
We want all of our clients to be comfortable and protected financially. With rates rising on a daily basis, we want to help our clients to secure a new product now before rates increase any more. If one of our client’s mortgage products is up for renewal in 6 months or less, we will contact them to discuss the new rates available, any extra borrowing or debt consolidation they might want to do, and then secure them a rate that will be manageable for them until the time comes when rates come down and we can secure a more competitive product.
When it comes to our clients whose mortgage is not up for renewal immediately, we strongly suggest that you give us a call to discuss your current situation and to prepare for the future.
Is It Worth Paying My Mortgage ERC And Getting A New Product?
With a lot of mortgage products, a lender will stipulate that if you end the deal before the agreed product end date (i.e. remortgaging before your fixed deal has come to an end etc.) the lender will often charge an early repayment fee. This is to cover any income or interest that the bank will lose out on if you end your deal prematurely. Normally, people want to avoid finishing their mortgage deal early to avoid paying this fee however, in a market where rates are going up and up, is it worth paying the fee to secure a new fixed deal?
A typical mortgage early repayment fee is between 1 and 5% of the balance of the mortgage. So, if you have a £200,000 mortgage, your ERC could end up being between £2,000 and £10,000. Each person’s circumstances are different, and each person’s mortgage should be looked at on a case-by-case basis with a professional mortgage advisor. But, in some cases, paying the ERC now, whether it’s 1% or 5% and securing a new rate rather than waiting until rates have increased, might actually save you money in the future.
For example, if your current rate is 2.5% over 25 years on a mortgage of £200,000, you could be paying around £897 a month. If your deal isn’t due for renewal until the end of next year, by the time your deal comes up for renewal the rates available to you might be 8%. That would mean that your monthly payment could go up to £1,544. If you look at paying the 1-5% ERC (£2,000 – £10,000) and remortgaging today, you could potentially get a rate of around 5.5% meaning a payment of £1,228. Still a jump up from your current payment but saving you £316 a month if you act now rather than later. That’s £3,792 a year or £18,960 saved over 5 years if you fix your mortgage for 5 years.
How Do I Know If It’s The Right Thing To Do?
Call our team. It’s as simple as that. You don’t need to already be one of our clients, you don’t need to have spoken to us before at all. We can help look at anyone’s mortgage finances and help you to decide what is the best option for you moving forward. Our initial mortgage consultation is absolutely free of charge, and we will be able to go through all of your options. We will only charge you a fee if you decide to secure a new mortgage through ourselves. Give our team a call today to see how we can help.
