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Are you trapped in your current mortgage deal?

trapped on mortgage deal

For many homeowners, taking out a fixed-rate mortgage deal can often seem like the most sensible option.

For first-time buyers a fixed-rate mortgage can be a great way of budgeting, particularly for those who may be completely new to juggling household finances. Knowing that you’ll be paying exactly the same amount of money every month means the rest of your money is free to spend on other things whether that is household bills, groceries or even a little something to treat yourself every now and again.

Should I always opt for a fixed mortgage deal?

Fixing your mortgage can also have its limitations.  The reason it’s called a fixed-rate is because you are locked into a specific interest rate for a set length of time, whether this be 2 years, 5 years or even 10 years.  Once you’ve reached the end of your fixed-rate period, you are free to move your mortgage deal to another provider without charge.  There are other options such as variable rates – these often come with lower interest rates, but they don’t offer you the same protection against sudden interest rate increases in the same way as a fixed deal.

But what happens if you’re still in the middle of your mortgage deal and you see something better?  Can you end your deal early?

Well, the simple answer is yes you can.  But you may not want to when you look into the potential cost of doing so!  Read the small print of a fixed-rate mortgage, and you’ll discover the penalty charges that your lender will ask you to pay.

What will the penalty charges be?

Penalty charges or early redemption fees as they are sometimes known are usually based on a percentage of your mortgage or monthly repayments. They usually start out pretty high at the beginning of the term; getting progressively lower the longer you are into your deal.

However, you’d be wise to get out your trusty calculator before you make any decisions!  You may be on a fixed-rate, but this doesn’t always mean that you are trapped.  If moving to a new mortgage can offer significant savings on your current deal, then it may still be a good deal.

Let’s take a look at an example:

On Mortgage #1, let’s say you are paying £600 per month with two years to go.  Your penalty charge for leaving is £2000.

Mortgage #2 will lower your monthly payments significantly to £450 per month.  With a saving of £150 per month, this makes a total saving of £3,600 over the 24 months that you would have had remaining on Mortgage #1.   Even paying the penalty fee of £2000, you are still £1600 better off than you would have been had you not switched to the better deal.

This may seem like a rather crude calculation, but it indicates that you aren’t always trapped by taking out a fixed rate deal – you just need to make sure you’ve done the relevant calculation.

It is however worth noting, that whilst there are still a number of great mortgages around, not everyone may be eligible for the lower rate deals, so in some circumstances it might be more financially viable to stay put on your current deal, until you are free to move without penalty.

How can I find the best deal?

The best thing for anyone to do is shop around to try and get the best mortgage deal, as with most financial agreements.  There are some great deals around from high street lenders but it may also be wise to seek out the expertise of a mortgage broker.  Brokers often have access to exclusive deals, and will be able to put in the legwork to find the most suitable deal for you, taking into consideration any charges or fees that you may incur by switching.

Speak to a mortgage broker today

The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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