Can early repayment charges be worth the cost?

It’s the unfortunate trade off—if you want the certainty and security of locking in a fixed rate for a mortgage, your mortgage contract will generally involve early repayment charges.

Typically, when you are fixed into a mortgage, the early redemption charges imposed by the lender makes it not financially worthwhile to re-mortgage midway through the term of the product to start a new cheaper product. This can be frustrating, especially if you frequently see lower rates advertised that could save you significant sums.

However, the threat of early repayment charges shouldn’t automatically rule out your ability to change your product. Historically low interest rates mean there does seem to be a ‘window of opportunity’ for people mid-way through a 5-year fixed term now.

When should you switch?

It’s likely someone 2-3 years into a 5-year fixed will be paying in and around 3%, potentially higher. As we can currently offer five year fixed mortgages priced at 1.7% with Barclays, 1.73% with NatWest, or 1.75% with Scottish Widows, there is an argument for switching now and paying the early redemption fees that your current lender is charging (likely to be 2% or 3%).

Not only will you save in excess of 1.25% in interest per annum (PA) for the remainder of your current product term—you will also have the peace of mind of knowing that you will be paying 1.75% for the next 5 years and won’t be risking looking for a new mortgage in 2 and half years’ time with uncertainty surrounding base rate rises over the next 2-3 years.

With concerns in regards to rising inflation suggesting that an interest rate rise could come within the year, now is the ideal time to lock in a low rate on your mortgage. As such, if you assess your figures carefully, and are able to secure a suitably low rate for your new product, this could be a viable method of saving money.