New Free Calculator Helps Homeowners Determine If It’s Worth Remortgaging Now To Avoid Interest Rate Hikes

INTEREST rates are on the rise, pushing up mortgage payments for many homeowners.

Those with fixed deals are protected for now, but will likely face higher bills when looking for a new deal.


Homeowners face higher mortgage billsCredit: Getty

Millions of owners have contracts expiring within the next 12 months.

When they come to remortgage, they will find that mortgage rates are higher than when they were set before.

According to Moneyfacts, a typical two-year fixed mortgage rate was 2.52% in August 2021, but has risen to 3.95% today.

An average five-year fixed contract is now 4.08%, down from 2.75% a year ago.

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The Bank of England raised rates last week to 1.75% and is set to make further interest rate hikes, experts predict, as it tries to tackle soaring inflation.

Many people face a dilemma: wait out the term or leave sooner and fix now before rates go up any further – but pay potentially high fees.

But a new calculator could help you figure out which is the most cost-effective option.

Fixed offers allow you to lock in a rate for a fixed period, usually between two and five years.

You have peace of mind by repaying the same amount each month for the entire term.

But if you want to leave the mortgage before the end of the term, you will usually have to pay an exit fee.

This can be in the thousands of pounds, depending on the size of your mortgage and the terms and conditions of your lender.

For some, it might be worth paying the fee and locking in a new rate now, before the patch ends.

But for others, it might be worth waiting until the end of the term.

Us’ tool, which is free to use, can help you calculate the savings – or extra costs.

It takes into account the amount you have left on your mortgage, the remaining term of the fixed agreement, monthly repayments and exit fees.

Us boss Greg Marsh said: “A lot of people signed up for these fixed deals when rates were really low.

‘No one – including the Bank of England – predicted they would rise so rapidly, and homeowners are facing a terrifying crisis on top of all the other increases in the cost of living.’

Remortgage now instead of waiting

Take a £250,000 25-year mortgage fixed in August last year at 2.52%.

You can compare the cost of re-mortgizing in August 2023 at the end of the two-year term with a rate of 3.95%, versus paying the early fee now of £5,000 (2% of the outstanding balance).

This shows that re-mortgaging now would set you back £529 after five years.

It should be noted that no one can be 100% certain what will happen with interest rates.

Although interest rates are expected to rise further according to economists, they could unexpectedly fall again.

For example, before Covid, the BoE was expected to continue to slowly raise interest rates, but it fell to an all-time low of 0.1% in April 2020 when the pandemic hit.

The tool lets you choose the assumptions it makes about interest rates – whether you follow market estimates (what experts think will happen) or whether you’re more optimistic or pessimistic about rates.

In our example, we’ve used market estimates, and it also factors in mortgage costs of £800.

But if you were more optimistic and thought rates might not go above 3.95%, you better wait as well.

Remortgaging now in this scenario would have you losing £1,216 after five years.

Remember that if remortgaging was now the best option, you would need to have access to the money to pay for early exit fees, for example from savings.

How to get the best deal for your mortgage

It should also be noted that the calculator is only an indication and that a mortgage advisor, broker or your lender will have a more complete picture of your loan, your situation and the rates available.

For example, on a remortgage, you may have a change in the loan-to-value (LTV) ratio that gives you access to better rates.

A change in your credit score or a better salary could also help you access better rates.

But the calculator might help you figure out if it’s worth exploring a mortgage now to save money.

If you’re on a fixed deal, you may be able to lock in a new rate now, up to six months before your current rate ends – and you won’t have to pay an exit fee.

Many wait until their existing loan runs out before taking on a new deal – but it could cost you more if you wait, as rates may rise by then.

When you come to the end of a fixed term, you’ll usually revert to lenders’ standard rates and these are usually higher than fixed offers.

To find the best deal, use a mortgage comparison tool to see what’s available.

You can also talk to a mortgage broker who can compare for you, but you may have to pay for this service.

It might cost a few hundred pounds, but it could save you thousands of dollars on your overall mortgage.

You will also need to consider mortgage fees, although some have no fees.

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Or you can add it to the cost of the mortgage, but beware, that means you’ll pay interest and it will cost you more in the long run.

Meanwhile, lenders are inundated with remortgage applications and four lenders have stopped processing them.

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