Leaving a fixed-rate mortgage early
You were undoubtedly over the moon to arrange your fixed-rate mortgage – for as long as your fixed-term lasts, you can be sure exactly how much your monthly mortgage repayments will cost. That’s not a certainty you would enjoy if you paid your lender’s standard variable rateThe interest rate charged by the lender that can vary over t....
Indeed, statistics released by the Financial Conduct Authority (FCA) on mortgage lending in the first quarter of 2022 suggest that three-quarters (74%) of all homeowner mortgages are fixed-rate and that they account for almost all (96%) of mortgages granted to first-time buyers.
But what about if your fixed-rate mortgage ends if you are exiting a fixed-rate mortgage early?
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What is a fixed-rate mortgage?
A fixed-rate mortgage is just what it says – a mortgage with a fixed interest rate for a defined period. That period can be practically any interval – there are fixed-rate deals for between one and 15 years, although those one and 15-year deals are rare. The most common fixed-rate mortgages are between two and five years long.
The overwhelming advantage of a fixed-rate mortgage is knowing exactly how much your monthly mortgage repayments will be. That is an enormous help in managing your household budget – especially if you are young and buying your first home when finances are likely to be particularly tight.
Choosing the length of your fixed-rate deal involves balancing the advantages of fixed monthly outgoings on your mortgage with the slightly higher interest rate you’ll pay the longer the fixed-rate term lasts – a 10-year fixed rate, for example, will cost you more than a two-year fixed-rate.
Can I leave a fixed-rate mortgage early?
If you have a fixed-rate mortgage – and enjoyed the certainty of consistent monthly mortgage repayments – what might be some of the reasons for coming out of a fixed-rate mortgage:
- by exiting a fixed-rate early, you can remortgageRefinancing an existing mortgage with a new mortgage. your home and arrange an alternative deal with a different lender – one that has recently come onto the scene offering more appropriate terms and conditions that suit your present circumstances, for instance;
- if you have sold your current home, any existing fixed-rate mortgage ends; or
- you want to withdraw from a joint mortgage because of a marriage breakdown or some other reason.
Whilst it is usually possible to quit a fixed-rate mortgage, you are likely to face early repayment fees and other charges imposed by your current lender.
In the light of the costs associated with coming out of a fixed-rate mortgage early, you might want to consult a qualified expert – such as ourselves here at NeedingAvice.co.uk – as to the precise implications given your circumstances.
Is it worth exiting a fixed rate mortgage early?
You will need to weigh up the financial implications of doing so very carefully – they can prove somewhat complicated.
As we have mentioned, the first and most obvious consequence of exiting your introductory fixed-rate deal before it has expired is the likelihood of your having to pay an early repayment chargeA fee charged by lenders if the borrower pays off the mortga... (ERC).
You would typically expect to pay an ERC of between 1% and 5% of your outstanding mortgage balance. The percentage you need to pay is likely more significant the longer the fixed-rate period you have remaining – the longer the interval, the more you’ll have to pay by way of an ERC.
By that logic, it is typically less expensive to exit a 2-year fixed-rate mortgage than, say, a 10-year fixed.
Depending on the reasons you have given for your exit and the policies adopted by your particular mortgage lender, you might also face the following additional fees and charges:
CompletionThe point at which a property purchase is finalized and owne... fees
- when you pay off the entire balance of your mortgage, you then own your home outright and will need to remove the mortgage lender’s charge against the property and close your account – most lenders will charge you (between £50 and £100) for that administrative service;
Valuation fees
- if you are exiting a fixed-rate early to arrange a new mortgage with an alternative lender, the latter will also require a valuation of the property – a service for which you will be charged; and
Legal fees
- sometimes your remortgage application will need to involve the services of a solicitor – and, once again, you will need to pay the cost of instructing one.
Next steps
Although it is entirely possible to come out of a fixed-rate mortgage early, there are financial implications that you will want to weigh carefully. The potential financial penalties could be enough to discourage you from even contemplating that early termination.
To help you decide, therefore, you might want to consult experienced brokers, such as ourselves here at NeedingAdvice.co.uk. Thanks to our wide-ranging contact within the mortgage market, we can help you avoid some of the pitfalls involved in leaving your fixed-rate mortgage early. And, if you are looking to remortgage, we may even be able to put you in touch with mortgage lenders offering free legal and valuation services as part of the refinancing package.
FAQs – Leaving a fixed-rate mortgage early
Can you leave a fixed-rate mortgage early?
Yes, it is possible to leave a fixed-rate mortgage during the introductory rate period. However, this should only ever be done when you know exactly what you are doing and you have weighed up all of the consequences.
The main reason why people choose to do this is that they believe that their interest rates will fall over time. This is not always the case, however, as many mortgage deals offer variable rates. If you are thinking about leaving a fixed-rate mortgage, it is important to understand how much you are paying each month before making any decisions.
The other major issue to consider is whether or not you will be able to get another deal in place quickly. Some lenders allow borrowers to switch mortgages within 28 days of signing up, while others will only let you move after 90 days. It is worth checking these terms and conditions before committing yourself to anything. If you are interested in leaving a fixed-rate mortgage early, you can contact a mortgage broker for your application process.
How to get out of a fixed-rate mortgage early?
If you are considering leaving a fixed-rate loan, you must first check whether you qualify to do so. You will need to make sure that you meet the criteria set by the lender. For example, you will need to be able to afford the repayments on your new mortgage without having to take out additional debt.
You will also need to ensure that you have sufficient equityThe difference between the value of the property and the amo... in your current property to cover the costs of moving into a different home. Many lenders will ask you to provide evidence of the amount of money that you have saved towards a deposit. They will then compare this figure against the outstanding balance of your existing mortgage.
Once you have checked that you meet the minimum requirements, you will need to apply for permission to leave your fixed-rate mortgage. In most cases, you will need to pay an exit fee, which will vary depending on the lender. You should expect to pay between £500 and £1,000.
Once you have paid the exit fee, you will receive a letter confirming that you have been granted permission to leave your fixed rate mortgageA type of mortgage with an interest rate that is fixed for a.... You will then be required to sign a form stating that you agree to repay the remaining balance of your mortgage. The lender will usually require you to start repaying your new mortgage straight away.
It is important to note that if you fail to pay back the full amount owed, you could face legal action from the lender. If you find yourself unable to pay off your mortgage, it is best to seek professional advice as soon as possible. A good mortgage broker will be able to guide you through the process of getting out of a fixed-term mortgage.
Can I get a mortgage without an ERC?
Yes, there are some types of loans where you don’t need to put down a deposit. These include:
• Personal Loans – These are short-term loans that are designed to help with immediate financial needs.
• Buy To Let Mortgages – These are used to purchase properties that you plan to rent out.
• Mortgage Bonds – These are similar to bonds but are available to homeowners who want to borrow more than £25,000.
• Home Equity Loan – This type of loan allows homeowners to use their own house as security when borrowing money.
• Cash Isa – This is a savings account that you open with your bank. Your earnings grow tax free until you withdraw them.
• Pension Plan Funding – This is a way of using your pension fund to secure a loan.
• GuarantorA person who guarantees to repay a mortgage if the borrower ... Loan – This is a loan secured by someone else’s assets.
There may be certain situations where you cannot get a mortgage without putting down a deposit. However, if you are looking to buy a property that does not cost more than £250,000, you might be better off saving up for a deposit rather than paying interest. For more information, you can contact our team of mortgage advisors.
