Should I get rid of my fixed rate mortgage for a longer deal?

I have one year left on my two-year fixed-rate mortgage. I am currently paying 1.16 per cent on £300,000.

Should I get rid of my deal and close a new one in case rates rise further? alaska, lincolnshire

Shock: What a week it’s been for mortgages as over 1,000 have been withdrawn from the market

Ruth Jackson-Kirby responds: What a week it has been for mortgages. More than 1,000 have been recalled, the highest number ever recorded in a single week. Rates on the remainder have risen as lenders grapple with an uncertain outlook for interest rates.

When you fixed your mortgage, there were offers below 1 percent. Today, some two-year arrangements exceed 5 per cent, which equates to thousands of pounds in additional interest payments each year.

You can check what fixed-rate mortgage deals might be offered to you and how much they would cost based on the size of your mortgage, the value of the home, and how long you want to settle for. with our best mortgage rate calculator, powered by L&C.

You are not the only one wondering what to do. You are in the fortunate position of being locked in to a low rate, but when you remortgage, your payments are likely to increase significantly.

The question is whether to move that day forward a year with the expectation that rates will continue to rise, making it cheaper to insure a new mortgage now.

First, you should consider early repayment charges (ERCs), which most lenders charge if you close a deal early. They are usually charged as a percentage of the outstanding balance and usually range from 3 to 5 percent.

However, some ERCs fall over the course of the mortgage. For example, in a five-year solution, ERCs could drop by one percentage point each year from 5 to 1 percent.

David Hollingworth, associate director at mortgage broker L&C, says: ‘It’s important to check what the ERC will be to help understand the penalty for breaking the deal. It also makes sense to check if it’s going to fall any time soon, as that could cause it to fall by a percentage point, which in your case could save you £3000.

Ultimately, you need to decide what you think will happen to interest rates in the coming months.

If you think they will continue to rise, you may decide it’s worth closing a deal now instead of waiting a year only to find out that the rates are still significantly higher.

Yet making that call is baffling even mortgage experts and economists. Financial markets are currently expecting the Bank of England to raise the base rate, on which the cost of all debt is based, to 4 percent this year and perhaps even 6 percent by the summer. Mortgage rates are likely to be at least a percentage point or two above this.

However, market expectations are running rampant, so they could easily change in the coming weeks. The best fixed-rate mortgages rose substantially last week in anticipation of rate hikes to come.

“Whether it makes sense to fix it now is a question that can only be answered with the luxury of looking back,” says Hollingworth.

“We just don’t know what might happen to rate movement going forward. If the rapid pace of change today tells us anything, it’s that things can change in a very short space of time.

If you stick with your current deal, you could use the money that would have gone in the ERC to overpay your mortgage. Most allow you to overpay up to 10 percent without incurring a fee.

Overpayments while your interest rate is low will have a bigger impact since more of the money will go toward paying off the principal you owe and less toward interest payments.

Then, when it’s time to remortgage, you’ll need to borrow less.

You can usually shop for a new mortgage long before your current agreement is up, since most offers are good for up to six months. That could protect you from some interest rate increases and you wouldn’t have to pay a prepayment penalty.

Also, if interest rates drop in the intervening months, you can search for a different offer and get rid of the offer without penalty.

If you switch early, keep in mind that your monthly payments will increase significantly, although not as much as they would if you waited another year to switch.

He is currently paying £1,153 a month on his mortgage with 24 years to go.

If you were to switch to one of the best two-year solutions now, you could get 3.5 per cent from Reliance Bank, bringing your repayments up to £1,542 per month. Over the next 12 months this would cost you an additional £4,664, plus a £995 arrangement fee.

If you were to switch to one of the best five-year arrangements at 3.67 per cent, repayments would rise to £1,568 per month and cost an additional £4,980 over the next 12 months. This is with Danske Bank and there is no setup fee.

Lock it in for ten years with Lloyds at 3.88% and you’d pay an extra £5,394 over 12 months, with no origination fee.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic. writes This is Money editor Simon Lambert.

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees; it is possible to ensure that they are not forced to remove it, but have the option to do so.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

This is Money’s mortgage broker partner, L&C, he told me the mortgages are still available and you can use our best mortgage rate calculator to show you offers that match your home value, mortgage size, term and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for

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