My five-year fixed rate mortgage contract expires in mid-February, and when interest rates spiked after the mini-budget, I decided to take action and get a new contract at the end of the month. ‘advance.
I ended up choosing another five-year fixed rate at 5.6% at no cost, directly with my mortgage lender. This is much more expensive than the fixed rate of 1.8%. 100 over five years that I propose.
I read that mortgage rates have since dropped, but can I upgrade to one of these lower rates or am I locked into the agreement I signed?
Too late? Our reader is wondering if he can ditch a mortgage he took out and get a new one with a better rate
We have a mortgage balance of £240,000 with 20 years remaining on the loan, and our house is worth around £425,000.
While I can afford the mortgage deal I got, I would obviously be grateful for any extra money to put into my savings. By email
Fran Ivens of this is Money responds: I’m sure there are a lot of people right now in your situation. Nobody had expected the rapid rise in rates last year following the mini-budget at the end of September.
The average two-year fixed rate peaked at 6.65% on October 20, with the five-year fixed rate peaking at 6.51% on the same day.
Rates started to ease when Jeremy Hunt took over as Chancellor and Rishi Sunak as Prime Minister, but it’s been a frantic few weeks, so it makes sense you want to fix as soon as possible and protect yourself against any further increase.
The good news is that there is more flexibility in mortgages than many people realize. You are not fully committed to a rate or product until you finish, if you are buying a home, or until your rate expires, if you are remortgaging.
This means you may be able to go back and choose a lower rate.
We asked three mortgage experts for their thoughts on your situation.
>> Will we see mortgage rates drop below 4% this year?
Ups and downs: Mortgage rates have been steadily rising since the Bank of England started raising the base rate. They then increased after the mini budget, but are now slowly decreasing
Matt Coulson, Director and Principal at Heron Financial, says: You are certainly not the only one to have acted quickly after the mini-Budget. We have seen a huge spike in activity with many customers wanting to get a new rate in the face of such uncertainty.
Since then, the situation has fortunately stabilized and mortgage rates have been falling steadily for several weeks. Depending on your situation, you could potentially hit between 4% and 4.5%, so the motivation to look at something new is definitely there.
Provided you haven’t pulled on the new mortgage offer – and it appears you haven’t – chances are you can just let the lender know you don’t want to continue. You risk losing money doing this if you paid a non-refundable fee, although the potential saving on the monthly payment should help soften the blow.
Although time is running out before your current offer ends, an efficient mortgage broker should be able to establish whether you qualify for a new offer and hopefully allow you to finish before your current offer expires. your current rate.
Most lenders will allow a customer to switch to a new rate before the mortgage application is complete without any issues.
I would speak with the lender and explain that you would like to switch to the new lower fixed rate. They will tell you if this is possible and the steps to follow.
Basically, people in your situation have three options. First, they can stay with the existing lender they applied to and switch to a new fixed rate under the mortgage.
They might also consider withdrawing the current application and resubmitting it to a new lender at a lower rate.
Or finally, they could explore options with the existing lender and do a product transfer instead, if that turns out to be a more profitable option.
Exit option: if mortgage rates drop before you use your new loan, you should be able to get a better deal
Imogen Sporle, Head of Real Estate Finance at Finanze adds: We were all apprehensive after the mini-budget, fearing that rates would continue to rise over the next few years.
But to our surprise – a pleasant surprise – they have started falling since December 2022, now stabilizing to show a more palatable market.
You will only have prepayment charges if you complete the home loan, so for a purchase this would be when you collect the keys.
That said, any reservation or lender assessment fees already paid will not be refundable.
What if you make a purchase request?
Nicholas Mendes, technical director of mortgages at John Charcoal, says: For a purchase request, if you are due to finish in a few days and there has been a rate change, trying to switch to a new rate will force the lender to reissue a new revised offer, which could delay the due date. completion set.
Other lenders will allow you to change the rate, but this will require you to submit a new application – which means more time and another thorough search of your credit score. A mortgage broker or advisor can guide you on this.
Once the application is made, it is important that your situation does not change, including your credit score. Sometimes selecting a new rate or product means the lender may need to reevaluate or update documentation.
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