Cheap Fixed Rate Ending - What Do I Do?

NikNak_07793

Hi,

My fixed rate mortgage doesn't end until 1 July 2027, but I keep seeing in the news that interest rates may rise 3 or 4 times before then. My current rate is 1.9% and available rates at the moment are 4.5%, which will be a big jump in my mortgage payment as it is. Am I better off fixing now and paying the penalty fee to exit early (around £2k) or waiting until January to arrange a new deal in the 6month window but gambling on the interest rates not rising? Thanks

Exodi

I think you would be absolutely insane (putting it politely) to forfeit your current 1.9% rate early and paying a penalty fee for the privilege… all for the chance that the current available rate of 4.5% might (or might not) be lower than you might be offered in July 2027.

I would ride your current rate until the last millisecond and have to be forced off it kicking and screaming.

Most on this forum would sacrifice their firstborn for your current rate (unless this is ragebait, if so consider me tricked).

ACG

It is a tough decision.

But I agree with Exodi. You will be paying a guaranteed 1%(?) plus around an extra 3% for the next 9-10 months in the hope of saving 1% pa IF rates do go up by 1%. If you are looking at a 5 year fix, it MIGHT make a tiny bit of sense but it is a big gamble and I think the odds are that you would be worse off doing that or at least not significantly better off.

If you were to do a 2 year fix, then I think it makes even less sense.

I paid the ERC on my mortgage back in 2022, it comes to an end in 12 months. I am glad I did it, I am not against paying ERCs. But my personal view is that I will be holding fire. This war must end sooner rather than later, it is affecting the whole world.

StewedApple

https://forums.moneysavingexpert.com/discussion/6684147/cheap-fixed-rate-ending-what-do-i-do

Would it not be sensible to do the maths?

10 months @ 1.95 - = current cost
2 years @ new rate = YYY + penalty charge £2k + arrangement fee
2 years @ new rate + 1% (allowing for further increases)

I suspect staying with the current rate is still cheaper than either of the other scenarios.

If conditions become more favourable toward the end of your fixed rate you could perhaps negotiate a new fixed rate before your current product ends.

NikNak_07793

https://forums.moneysavingexpert.com/discussion/comment/82144895#Comment_82144895

Definitely not ragebait, I'm not great with this kind of thing and my family have been suggesting I switch early. My repayments would currently rise by around £300 if I fixed at the 4.5%, I think they think that it would be better to do that, than to wait until the middle of next year when rate MAY be up at 6%. Thank you for the advice, I really appreciate it!

Exodi

https://forums.moneysavingexpert.com/discussion/comment/82144977#Comment_82144977

I see, in which case this is simply (expensive) speculation.

It's not as if mortgage rates are simply current BoE rate + lender margin, mortgage rates are influenced by market expectations and swap rates. If interest rates are expected to go up in the near future (which everyone is predicting), then that will have already been priced into current rates.

What you are gambling on is rates increasing by more than markets are pricing in, or future events which are currently unknown to the market. Many feel current rates are already unsustainably high.

I'm all for a bit of arbitrage, but it seems incredibly risky from a basis of a very low guaranteed rate with a fee to exit early based on little more than family gut-feelings. It also feels a tad reckless by your family as you mention you're 'not great with this kind of thing'. Despite there being little upside potential, being incorrect could well cost you thousands (unless they intend to indemnify you?)

penners324

Extremely unlikely mortgage rates will go to 6% inside 6 months.

Just hold as you are.

Switching now and paying the ERC would be a very expensive mistake. Imo

poseidon1

Was going to contribute my tuppence worth of 'wisdom', but hardly seems worth the effort for an OP who has not bothered to log in since the 1st day of their post 5 days ago.

thegreenone

Start saving the difference between your current rate and potential future rate so you can get used to the difference when your 1.9% matures. Enjoy your low rate until the last moment and then use the money saved to take the edge off the increase.

Sadly, no-one knows what will happen next summer.

RelievedSheff

https://forums.moneysavingexpert.com/discussion/comment/82149996#Comment_82149996

Erm!

https://www.bbc.co.uk/news/articles/c8r4yxpry5e9o

BikingBud

Whoops:

Average five-year mortgage rate hits 6% for first time in three years