There may be many reasons why you’re looking to know how soon you can remortgage before your fixed rate ends, from reducing your monthly mortgage payments to looking to do an equity release. However, if you are looking to remortgage within your fixed period, make sure you’re careful so you don’t incur a lot of unwanted additional charges.
You can remortgage at any point within your fixed term mortgage, however, to avoid any early repayment charges it’s usually a maximum of six months before your fixed rate ends. This can be different depending on your lender and other factors which I’ll run through.
When Is The Best Time To Remortgage?
The best time to remortgage can be quite a subjective question as a lot will depend on why you’re wanting to remortgage. There can be many reasons why you’re looking to remortgage, however, the best time to remortgage will be the point in time when you can minimise all of the fees and penalties to reduce the costs as much as possible.
When remortgaging, the biggest fee to be aware of that can be underestimated is the early repayment charge. This can be between 1% and 5% of the total amount borrowed and usually reduces as you get further into your fixed term.
For example, if you take a 5-year fixed-rate mortgage, the early repayment charges to cancel or repay your mortgage in full within the first year can be 5%. This means for every 100,000 borrowed, you’ll be charged 5,000 which can add up very quickly even for the average property.
This early repayment charge is usually reduced each year throughout the contract which is shown in the table below.
|Example 5 Year Fixed Rate Mortgage||Early Repayment Charges|
|Cancel in Year 0-1||5%|
|Cancel in Year 1-2||4%|
|Cancel in Year 2-3||3%|
|Cancel in Year 3-4||2%|
|Cancel in Year 4-5||1%|
|Submit mortgage application in the final 6 months||0%|
As you can see, when you’re in the final stages of the mortgage, usually in the final 6 months, this is when you’re potentially able to remortgage with zero early repayment charges. Each lender will have different terms and some may even allow you to remortgage earlier if you’re wanting to take your next mortgage with them.
Even if you’re looking to go with a different mortgage lender, mortgage offers are usually valid for between 3 to 6 months. Starting this process early can have several benefits that I’ll run through below.
Benefits to Remortgaging Before the Fixed Rate Ends
Starting the remortgaging process early before your fixed-rate ends can have many benefits.
- Avoid moving to your lender’s higher standard variable rate of interest. When your fixed-rate term end, most mortgage products then transfer you on to a standard variable rate which is often at a significantly higher interest rate than your initial fixed rate. This can cause your mortgage payments to increase a lot which can be avoided if you get your new mortgage in place before the current one ends.
- Lock in a particular mortgage interest rate. Interest rates can be quite volatile, especially in recent times when they only seem to be going up. Securing a mortgage offer, usually called a decision in principle, can help you lock in a particluar interest rate to help avoid the uncertainty or risk of interest rates going up.
- More time to shop around. The earlier you start the process, the more time you have to understand all of your options and get the right product for you. If you remortgage just before your fixed rate ends, you’ll probably be in a rush to avoid being put on a higher interest rate. Instead if you start 3 to 6 months before, you can explore all of your options fully. This can also help you understand where you could make savings, such as if you’re close to the next deposit bracket so you can get a reduced interest rate.
Although starting the remortgaging process early has a lot of benefits, remember that lenders take different approaches in how for an advance they’ll offer you a mortgage and also waive their early repayment charges.
Make sure you know what terms your current mortgage has which can help you plan. If you do have any questions or are looking for someone to help throughout the process, make sure to speak to a mortgage advisor that can help explain your options.
Ways To Reduce Early Repayment Charges
Early repayment charges (ERCs) are the main barrier to remortgaging early and can come as quite a shock if they’re not expected, especially if you have a long time away from the end of your fixed term. However, knowing how to reduce these charges can be very helpful as can save you thousands as well as be able to challenge your mortgage broker.
- Wait until you pass a specific time threshold. As you can see in the table above, early repayment charges often reduce in line with the years you’ve had your mortgage. This means if you are wanting to remortgage early, waiting until you move into the next year can help save a significant amount of money.
- Remortgage with the same lender. A lot of lenders may waive or significantly reduce their early repayment charges if you remortgage with the same lender. This is because it costs the lender a lot of money to secure new business, usually paying mortgage brokers significant sums of money to recommend their products. By securing your business for another mortgage, they can save these mortgage broker fees and can reward you with reduced fees. Not all lenders will act in this way, however, it may be worth trying to find out.
- Choosing a mortgage product that doesn’t incur early repayment charges. If you know before you sign up for your mortgage that there’s a likelihood that you’ll need to remortgage within the fixed term this can help you choose your mortgage product. There are mortgage products available with zero or significantly reduced early repayment charges. You also could opt for a shorter fixed-rate term so you aren’t trapped on a long fixed rate if you don’t want to pay the high fees. If you have a mortgage broker, this is something you can discuss with them and ask for their advice.
Fees To Be Aware of When Remortgaging
Early repayment charges. If you remortgage within your fixed-rate term you can incur charges of between 1-5% of your total mortgage balance. This can add up to quite a significant sum so make sure to check this before remortgaging. This is when waiting until at least 6 months before can allow you to avoid these early repayment charges.
Exit fees. This is usually between £50 and £300 and is a fee to shut down your existing mortgage. If you remortgage with the same lender, these fees can sometimes get waived.
Broker fees. If you get a mortgage broker to help you with the remortgage process, they may also charge you fees directly, although sometimes they’re free. I’ve written a post explaining exactly how mortgage brokers get paid that you may find useful so you can ensure you’re getting value from their services.
Valuation fees. This is often free when remortgaging.
Booking fee. Also known as an application fee or reservation fee which some lenders charge and can range from £100 to £250.
Arrangement fees. This is a fee to take our your next mortgage and can be quite high, of at least a thousand or even more. If you opt for a shorter-term fixed period or speak with certain mortgage advisors that have good agreements with lenders, this can also be free.
Conveyancing fee. These are the legal costs to make sure the purchase and transfer of money are handled correctly.
How Long Should You Fix Your Mortgage For?
Knowing how long you should fix your mortgage can be very subjective. What’s right for one person may not be right for another, however in general if you’re thinking you’ll need to cancel your mortgage within the fixed-rate term it’s usually better to go for a shorter fixed-rate term to avoid the early repayment charges.
Needing to cancel your mortgage can be for any reason, this can include buying a new house, remortgaging for an equity release or wanting to secure a better interest rate. If you are buying a new property, as long as it’s for the same value or higher, some lenders will allow you to port your mortgage to the new property, allowing you to keep the same mortgage and avoiding early repayment charges.
I’ve written a more in-depth post on how long you should fix your mortgage that you may find useful.
Overall, the best time to remortgage is when you can do so with minimal early repayment charges, ideally none. This is why waiting to remortgage until at least 6 months before your fixed term ends is best and also means you aren’t in a rush if you leave it till you’re just about to be moved to a higher variable interest rate.
Hope your remortgage goes well and remember if you have any questions, make sure you speak to a mortgage advisor so they can explain all of your options and give you advice related to your current situation.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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