Remortgage During a Fixed Term

Can You Remortgage During a Fixed-Rate Mortgage?

Yes, it is entirely possible to remortgage during a fixed-rate period. There is no legal or regulatory restriction preventing you from switching your mortgage to a new deal or a new lender while you are still on a fixed rate. However, doing so will almost certainly trigger an early repayment charge, which your current lender will deduct when the mortgage is redeemed.

When you took out your fixed-rate mortgage, you agreed to a specific deal period during which your rate would remain unchanged. In return for this rate certainty, the lender included an ERC in the terms to protect their income if you left the deal early. This is a standard feature of virtually all fixed-rate mortgages in the UK.

The ERC is the primary obstacle to remortgaging during a fixed term, but it is not an insurmountable one. In some circumstances, the savings from a new deal can outweigh the cost of the ERC, making it financially advantageous to switch. In others, the ERC makes switching prohibitively expensive, and waiting until the fixed period ends is the better option.

It is important to understand that the ERC applies when you repay your mortgage to your current lender, regardless of the reason. Whether you are remortgaging to a new lender, selling your property, or simply paying off the mortgage with savings, the charge will typically apply if you are within the fixed-rate period.

Some fixed-rate mortgages include a portability feature, which allows you to transfer the deal to a new property if you move house. This can help you avoid the ERC when moving, but it does not help if you simply want to switch to a better rate without moving.

Why Homeowners Consider Breaking a Fixed-Rate Deal

There are several common reasons why homeowners consider remortgaging during a fixed-rate period, even with the prospect of paying an early repayment charge.

Interest rates have fallen significantly. If market rates have dropped substantially since you locked in your fixed rate, the monthly savings on a new deal could be considerable. For example, if you fixed at 5.5% and rates have since fallen to 3.5%, the potential saving on a 250,000 pound mortgage would be around 250 pounds per month, which adds up quickly.

A need to release equity. If you need to access the equity in your property for home improvements, debt consolidation, or other purposes, you may need to remortgage to a new product that allows additional borrowing. Your current lender may offer a further advance, but this is not always the most competitive option.

Changed financial circumstances. If your income has reduced, you may need to extend your mortgage term to lower your monthly payments. Alternatively, if your income has increased, you might want to switch to a shorter term to pay off your mortgage sooner. These changes may require a new mortgage product.

Relationship changes. Separation, divorce, or a new partnership may necessitate changes to your mortgage, such as removing or adding a name. While some changes can be made with your existing lender, others may require a full remortgage.

Dissatisfaction with the current lender. Poor customer service, limited online tools, or inflexibility on overpayments or other features can motivate homeowners to switch lenders. While this alone rarely justifies paying an ERC, it can be a contributing factor alongside other reasons.

Concerns about future rate rises. If your current fixed rate is due to end and you are worried about being moved onto a high SVR, you might consider switching early to lock in a new rate. However, most lenders allow you to secure a new rate up to six months in advance, so early switching is often unnecessary for this reason alone.

The Cost of Remortgaging During a Fixed Term

The biggest cost of remortgaging during a fixed-rate period is the early repayment charge. The size of this charge depends on your lender and the specific terms of your mortgage, but there are some general patterns.

For two-year fixed-rate mortgages, ERCs are typically between 1% and 2% of the outstanding balance. Some lenders charge a flat rate for the full two years, while others reduce the charge in the second year.

For five-year fixed-rate mortgages, ERCs are usually higher in the early years and reduce annually. A common structure is 5% in year one, 4% in year two, 3% in year three, 2% in year four, and 1% in year five, though this varies between lenders.

For ten-year fixed-rate mortgages, ERCs can be substantial in the early years, sometimes 6% to 7% of the balance, and typically reduce gradually over the term. Some ten-year fixes allow penalty-free exit after a certain number of years, such as five or seven years.

In addition to the ERC, you may face other costs associated with remortgaging:

• Arrangement fees on the new mortgage, which can range from zero to 2,000 pounds or more
• Valuation fees, though many remortgage deals include a free valuation
• Legal fees, which are also often covered by the new lender as part of the remortgage package
• Broker fees, if you use a mortgage broker, though some brokers are paid by the lender

When assessing the total cost of switching mid-deal, you need to add all of these costs together and compare them against the savings you would make on the new rate. Only if the savings clearly exceed the total costs does it make sense to proceed.

Alternatives to Remortgaging During a Fixed Term

If the cost of breaking your fixed-rate deal is too high to justify, there are several alternatives worth considering.

Product transfer with your existing lender. Some lenders allow you to switch to a different product without triggering the ERC. This is not universal, and the terms vary, but it is always worth asking your current lender whether a product transfer is possible. Even if the rates are not the absolute best on the market, avoiding the ERC can make a product transfer the more cost-effective option overall.

Wait and plan ahead. If your fixed rate is due to end within the next six months, most lenders will allow you to apply for a new deal in advance. This means you can lock in a competitive rate now and have it ready to start as soon as your current deal expires, with no ERC to pay. Some lenders hold rates for up to six months, giving you ample time to plan.

Make overpayments. If your goal is to reduce your mortgage balance or pay it off sooner, making overpayments within your annual allowance can achieve this without triggering an ERC. Most mortgages allow overpayments of up to 10% of the outstanding balance each year. Over time, these overpayments can significantly reduce your balance and the interest you pay.

Consider a further advance. If you need additional borrowing, your current lender may offer a further advance on top of your existing mortgage. This keeps your current deal intact and avoids the ERC, though the rate on the further advance may be different from your existing rate. Compare the overall cost against remortgaging to ensure you are getting the best deal.

Explore a second charge mortgage. For larger borrowing needs, a second charge mortgage, also known as a secured loan, allows you to borrow against your property without disturbing your existing mortgage. This avoids the ERC entirely, though rates on second charge mortgages are typically higher than first charge mortgage rates. A specialist broker can advise on whether this is a viable option.

Review your budget and financial priorities. If the motivation for remortgaging is financial pressure, it may be worth looking at your overall budget before making changes to your mortgage. Small adjustments to spending or income can sometimes achieve the same result without the cost and complexity of a remortgage.

How to Start the Remortgage Process During a Fixed Term

If you have decided that remortgaging during your fixed-rate period makes financial sense, here is how to approach the process step by step.

Step 1: Confirm your ERC. Contact your lender or check your mortgage documentation to confirm the exact ERC that applies and the date it expires. Make sure you understand whether the charge is calculated on the full balance or just the amount being redeemed.

Step 2: Get an accurate property valuation. Knowing your property value helps you calculate your LTV, which determines the rates available to you. Online tools can give you a rough estimate, but the lender will carry out their own valuation as part of the application.

Step 3: Speak to a mortgage broker. A qualified broker can search the market for the best deals at your LTV level and run the numbers to confirm whether switching makes financial sense after accounting for the ERC and all other costs. Look for a broker who is authorised and regulated by the FCA.

Step 4: Compare the total costs. Work with your broker to compare the total cost of staying on your current deal (including any time on the SVR after it expires) against the total cost of switching now, including the ERC, arrangement fees, and the new monthly payments.

Step 5: Submit your application. If the numbers support switching, your broker will submit your application to the chosen lender. You will need to provide the usual documentation, including proof of income, bank statements, and identification.

Step 6: Manage the transition. The new lender will arrange a valuation and their solicitors will handle the legal work. The ERC will be deducted from the proceeds when your old mortgage is redeemed. The whole process typically takes four to eight weeks.

Throughout this process, keep in mind that you can change your mind at any point before completion. If circumstances change or you receive new information, there is no obligation to proceed until the final stage.

Planning for Your Next Fixed-Rate Deal

Whether you decide to break your current fixed rate or wait it out, planning for your next mortgage deal is an important part of managing your finances effectively. Here are some strategies to put yourself in the best possible position.

Set a reminder for six months before your deal ends. This gives you plenty of time to research deals, speak to a broker, and have a new mortgage in place before you move onto the SVR. Many homeowners let their deal expire without a plan and end up paying the SVR for months, costing them hundreds of pounds unnecessarily.

Consider whether a shorter or longer fix is right for you. Two-year fixes offer more frequent opportunities to switch but come with less rate certainty. Five-year fixes provide longer stability but tie you in for longer. Think about your life plans and financial goals when choosing your next deal length.

Look at the ERC structure before committing. When comparing new deals, pay attention to the ERC schedule. A deal with a lower initial ERC or one that reduces more quickly gives you greater flexibility if your circumstances change again. Some products offer no ERC at all, though typically at a slightly higher rate.

Build your equity where possible. Making overpayments during your current deal can reduce your LTV and open up better rates when you next remortgage. Even modest overpayments can make a meaningful difference over two to five years.

Keep your credit profile healthy. Pay all bills on time, keep credit card balances low, and avoid making unnecessary credit applications. A strong credit profile will help you access the most competitive rates when you next remortgage.

Stay informed about the mortgage market. Keeping an eye on interest rate trends and market developments can help you time your remortgage decisions more effectively. Subscribe to mortgage news updates or speak to your broker periodically to stay up to date.