Can I Remortgage Before My Fixed Term Ends?

A fixed-term mortgage establishes an interest rate that remains constant for a specific period, providing predictable monthly principal and interest payments. This fixed period offers stability in budgeting, as the portion of your payment allocated to principal and interest will not change. While many homeowners initially commit to terms like 15 or 30 years, circumstances can evolve, leading to a consideration of remortgaging before the current fixed term concludes. Exploring a new mortgage deal early often arises from changing financial landscapes or personal needs.

Key Considerations for Early Remortgaging

Evaluating current market interest rates is a key factor when considering an early remortgage. Significant drops in prevailing rates can make a new mortgage deal financially attractive, potentially leading to lower monthly payments over the remaining loan term. Conversely, if interest rates have risen substantially since the original mortgage was secured, remortgaging might not offer the same savings advantage. Homeowners with pre-2022 mortgages, for instance, often secured loans at rates much lower than current levels, which can make early remortgaging less appealing due to the potential for higher new rates.

Changes in personal financial goals also often prompt a review of mortgage arrangements. Homeowners might seek to consolidate higher-interest debts, such as credit card balances, by rolling them into a new mortgage with a typically lower interest rate. Additionally, the desire to access accumulated home equity for purposes like home improvements or other significant expenses can drive the decision to remortgage. Adjusting monthly payments due to shifts in income, either by extending the loan term for lower payments or shortening it to pay off the mortgage faster, represents another common personal financial objective.

An increase in property value can also open up new remortgaging opportunities. When a home’s market value rises, the loan-to-value (LTV) ratio decreases, potentially qualifying the homeowner for more favorable interest rates or the ability to release a greater amount of equity. This improved equity position can provide leverage for a new mortgage that better aligns with current financial standing. The timing of these considerations is important, as the potential benefits must be weighed against the remaining duration of the current fixed term.

Financial Implications of Early Remortgaging

Breaking a fixed-term mortgage before its scheduled end typically incurs an Early Repayment Charge (ERC). This fee is levied by the current lender to compensate for the interest income they will lose due to the early termination of the loan agreement. ERCs are commonly calculated as a percentage of the outstanding mortgage balance, usually ranging from 1% to 5%. Some lenders may implement a sliding scale, where the percentage decreases as the mortgage approaches the end of its fixed term, for example, starting at 5% in the first year and reducing to 1% in the final year.

Beyond the ERC, several other fees are associated with securing a new mortgage. New lenders often charge an origination fee, which covers the cost of processing and underwriting the loan, typically ranging from 0.5% to 2% of the total loan amount. An application fee, which can be between $0 and $500, may also be charged to process the loan application and conduct administrative tasks, including pulling a credit report.

A new property valuation is typically required by the incoming lender to confirm the home’s current market value. The cost for this appraisal typically ranges from $300 to $700, depending on the property’s size, location, and complexity. Legal or conveyancing fees are also incurred for the necessary legal work involved in transferring the mortgage, which can range from $500 to $1,000. Additional charges might include recording fees, typically between $25 and $250, and title insurance or search fees, which can be $400 to $900. It is important to calculate the sum of these costs, including the ERC, and compare them against the potential long-term savings from a lower interest rate to determine the financial viability of an early remortgage.

Steps to Remortgage Before Term End

Initiating the remortgage process involves thorough research to compare various mortgage deals available from different lenders. This initial phase helps identify potential interest rate savings and suitable loan products that align with personal financial goals. Engaging with independent financial advisors or mortgage brokers can provide valuable guidance, as they have access to a wide range of options and can offer tailored advice. Understanding the different loan types and terms available is an important part of this preparatory step.

The application process requires submitting a comprehensive set of financial documentation to the prospective lender. This typically includes:

• Recent pay stubs covering the last 30 days
• W-2 forms from the past two years
• Bank statements for all financial and investment accounts for the most recent two months

Self-employed individuals will need to provide two years of tax returns and a current profit/loss statement. Lenders will also obtain authorization to pull a credit report to assess creditworthiness.

Following the application, the new lender will arrange for a property valuation to ascertain the home’s current market value. This valuation ensures that the loan amount is appropriate for the collateral.

Legal work, known as conveyancing, is a necessary step handled by a solicitor or conveyancer. This professional manages the legal transfer of the mortgage from the old lender to the new one, ensuring all legal requirements are met. They oversee tasks such as:

• Title searches
• Preparing and reviewing legal documents
• Registering the new mortgage

Once the application and legal processes are complete and approved, the lender will issue a mortgage offer detailing the terms of the new loan. Upon acceptance, the final stage involves the completion of the new mortgage, where funds are disbursed, and the new mortgage officially replaces the old one.