Getting Out Of A Fixed Rate Early

With many fixed rate mortgages there will be a financial penalty if the loan is repaid early. There are many reasons we experience here at Just Mortgage Brokers when speaking to customers that mean that they may need to consider doing just that, and as such, we’ve put a the following information together to help you if this is something you may be considering.

The reasons you may need to pay a fixed rate mortgage early

1. To change to a more beneficial or better suited interest rate: You may have fixed your mortgage at a competitive rate at the time, however, you may find that rates have improved since then and with the options available now it could be financially better to pay your penalty and change. We do, however, strongly recommend that you do not add any penalties to your mortgage balance where possible, as this can be counter productive when interest is then charged on the increased loan size.
2. Remortgage: You may be remortgaging to change your rate as detailed above but people remortgage for many varying reasons. If there is no actual financial gain to you by paying a penalty but the need to change your mortgage is still relevant, please make sure you investigate all options available to you first. Options such as a secured loan if needing to raise extra funds, or adding an additional borrower to your current mortgage if affordability is an issue.
3. Moving home: Many fixed rates are portable e. they can be transferred to another property when you move however, it is worth noting that just because a fixed rate is portable does not mean a lender has to allow you to transfer it. Your circumstances will still need to meet their criteria at the time of your move, and if not, this may mean you will have to pay a penalty and seek your new mortgage from another provider. We strongly recommend you take any future plans such as moving house into consideration when you arrange a fixed rate.
4. Repay all or some of your mortgage off: If you are in a fortunate position of being able to repay some or all of your mortgage, your fixed rate scheme may permit a certain amount to be repaid without penalty. For many schemes this is set at 10% of the balance per annum. If considering reducing your balance it’s worth assessing what penalty you may have to pay and how much longer this is applicable for and compare this against any possible returns you may get if the money was put in a savings account.

Can I get a fixed rate without penalties?

Yes, some lenders do offer fixed rate schemes without any penalty clauses.  These are few and far between and will likely come with an arrangement fee, payable at the outset and also offered at a marginally higher rate than those that do have early repayment charges attached. You may also find fixed rates that offer offsetting facilities. Whilst these may have penalties if paid off in full, you will likely be able to pay money into a connected savings account that in turn will reduce the interest charged on the equivalent amount on the mortgage balance.

How to get out of a fixed rate early?

All lenders will allow you to get out of a fixed rate early, however, in virtually all instances they will not waive any penalties that are associated with doing so. A lender will refer you to the terms and conditions of the fixed rate within your formal mortgage offer that will provide, in detail, the penalties attached to your scheme. A lender may in certain circumstances, such as the death of a borrower, waive any penalties for the repayment of a mortgage during a fixed rate term, but for most circumstances, a penalty will need to be paid where advised in your original terms and conditions.

We are here to answer any other questions you may have, get in touch.