Posted on 2 January 2011 by Simone
My 5 year fixed rate mortgage (4.79%) ends in July 2011 and I am uncertain what the best decision is regarding remortgaging. During the 5 year fixed period, I have been overpaying the mortgage as much as is allowed within the terms and also saving to increase the size of any future deposit.
I own my flat but I plan to sell it to contribute to a larger deposit when my boyfriend and I to buy a house together sometime in the next 6 to 12 months.
I am unsure if I should:
a) Remortgage early to take advantage of the low interest rates and pay any penalty charge for leaving up to 7 months early whilst making sure that the mortgage is flexible enough for my upsizing plans.
b) Let the fixed term end in 7 months and see what’s around then and how close I am to buying somewhere new.
What would you advise?
It is normally not worth paying the early repayment charge to change your mortgage unless you have no other choice. I don't know how much the penalty is but unless your mortgage is with HSBC it is likely to be at least 1% and we do not believe at this time that rates are going to increase by that much in the next 7 months.
There are other factors that you need to consider before deciding whether to remortgage, your current Lender may offer retention products at today's rates if you suggest that you are going to remortgage and often these are available without paying any penalty, especially if you are taking another fixed rate and the interest rate your current mortgage reverts to may well be less than the rates currently available and this would allow you to be very flexible when deciding when to sell.
Finally, it is always possible to arrange a remortgage prior to your current deal coming to an end. This would allow you take advantage of the rates available at the time whilst avoiding the payment of any penalty. If you choose this option you will need to watch out for any completion deadlines the Lender imposes and also check how long any mortgage offer is valid for. You don't want these to expire prior to the end of July.
I recommend that you speak to an independent mortgage broker now and supply them with the details of your current mortgage and the early repayment charges. They will then be able to look at all the facts and give you the best advice for your situation.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.