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Are huge mortgage cancellation fees worth it to avoid higher rates next year?

Are huge mortgage cancellation fees worth it to avoid higher rates next year?
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With signs of inflation rising to more than 4% next year, lenders have recently started to adjust mortgage rates. Many are pulling their lowest rates from the market, which has led to a significant decline in the number of fixed-rate sub-1% mortgages in the last two months.

This has led to a rise in the number of Brits looking to remortgage when their fixed-rate mortgage period ends. And some Brits are thinking of remortgaging before their fixed-rate period ends. But is it worth paying huge mortgage cancellation fees to avoid paying higher rates next year?

Will the base rate increase in 2022?

Many thought the Bank of England’s Monetary Policy Committee (MPC) would increase the base rate during their meeting on 4 November 2021, but it didn’t. This doesn’t mean it won’t happen at the next meeting on 16 December 2021 or even early next year if inflation continues to soar.  

The chancellor already mentioned that the government’s Office for Budget Responsibility is expecting the CPI to average 4% over the next year and that if this happens, the government is “ready and willing to act”.

It’s wise to make financial decisions with the mentality that the base rate is likely to increase, which is why mortgage lenders have already started increasing mortgage rates.

Should I remortgage before my fixed-rate mortgage period ends?

The main worry is that inflation will continue to soar and the base rate might rise. If this happens, once your two or five-year fixed-rate mortgage deal ends, you could end up with a higher interest rate when your mortgage converts to a standard tracker or variable rate mortgage.

With these inflation pressures and interest rate uncertainties, it’s understandable if you’re thinking about remortgaging before your fixed-rate mortgage period ends. It could make sense for you to pay an early repayment charge in order to lock in a better interest rate that might not be available when your current fixed-rate deal expires.

Of course, this may not be an option for everyone. It’s a good idea to consult a mortgage broker to avoid missing crucial details that could lead to costly mistakes, especially if you feel unsure or encounter challenges.

So, is it worth paying huge mortgage cancellation fees to avoid paying higher rates next year? Well, the short answer is that it can be worth it, but it depends on your circumstances. Here are some key steps you should take to find out if it’s the right move for you.

1. Find out how much your current deal costs

Use a mortgage calculator to determine how much your current deal will cost you until completion and compare the amount with deals from other lenders. Your goal is to see whether a new long-term deal, including the mortgage cancellation fee, might be cheaper than waiting until the end of your deal when rates will likely be higher.

2. Identify the remortgaging fees you’ll incur

Remortgaging comes with some costs, for example:

  • Solicitor’s fees
  • Valuation fees
  • Transfer fees
  • Early repayment charges

Once you add these fees to other cheaper deals you come across, are they still affordable? If not, you might be better off sticking with your current deal.

3. Find out whether you’re eligible for remortgaging

Remember, your current lender had to conduct a background check to determine whether you’re a good candidate. Your new lender will also perform the same assessment if you decide to remortgage.

Are you still a good candidate or have your financial circumstances changed? Maybe something has impacted your credit score or your income is not what it used to be.

4. Ask your lender for a better rate first

If you find a cheaper deal and you’re still a good candidate for a remortgage, talk to your existing lender first. Find out whether they can match the deal before you move forward.

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