Q I’m just coming into the final year of my five-year fixed-rate mortgage (it ends in January 2023). With interest rates looking likely to rise, is it worth me remortgaging now and taking the 1% hit on early repayment in the final year to bag a good deal, or should I wait until the fixed term ends?
I owe about £90,000 on a house worth about £220,000 and my current rate is 2.14%.
A It might be worth remortgaging now but a lot depends on whether the potential savings you could make would cover the costs of switching.
As well as the early repayment fee from your current lender of £900, these include the new lender’s valuation fee, legal fees (if the new lender doesn’t cover these) and any arrangement fee – typically in the region of £1,000 – for taking out the new fixed-rate deal.
The sums don’t seem to add up, even if you go for the cheapest deal currently on the market. Cutting your current interest rate by one percentage point could mean an annual saving of just under £500 which is well short of being enough to cover your switching costs.
On the plus side, because your mortgage represents less than 60% of the value of your home, the rates available when your current fixed-rate deal comes to an end may not be as bad as you fear. For example, if the best rates available now were to go up by one percentage point by January 2023 you would be looking at 2.24% for a two-year fix, 2.39% fixed over three years and 2.36% fixed over five.