Mortgage Rates

[Riddlediddle]

We are currently on a 5 year fixed rate mortgage that has 2 years remaining with current lender before remortgage is needed (65k balance left on a 190k house) and 17 years left to pay overall. This rate is competitive at 1.94%.

The remortgage is 2 years away yet however I am starting to worry what interest rates may be like then given the very unstable economic conditions currently. As it stands rates are low and I could get another fixed rate for 1.64% with no set up fees. I am worried that by the time we start to look at our renewal in about 18 months interest rates may have sky rocketed meaning any new deal at that point will incur higher monthly payment which we would struggle to afford (even a increase in rates to 4% would result in over £100 more to pay per month which is a lot more for us when budget is already tight) therefore would it be crazy to remortgage now and lock onto a new 5 year rate of 1.64% even though this would cost me approx 1300k in early payment charges (2% of the balance)?

I am a very risk averse person and i like the thought of the knowing I have a fixed monthly payment which I'm comfortable with for the next 5 year's. Would I be mad to remortgage now and forfeit the 1300k early repayment charge just for this security?

I know no one has a crystal ball and can't predict what will happen with interest rates but does anyone have a vague enough knowledge to predict if and when they will start rising and therefore stsrt to push up the fixed mortgage rates too?

Thank.you!

Just bumping as I realise this was posted in the early hours when not many people would be online.

I’m risk averse too so I would get a huge boost from having the peace of mind. However I’m not sure which is the best option financially. Who knows what will happen in the next few years. I would guess interest rates will stay low, but I’m not in any way involved in finance. I’m not sure how much the early repayment charge would impact on your current finances. Would it leave you at risk of not making other payments or not having enough for your essentials or cut massively into your savings? The advice is to have 3 months salary in savings, so would you have that cushion after paying the £1300? If you have, in your situation I’d probably go for it, the peace of mind would be worth it for me.

If you can go from 1.94% to 1.64% with no fees, that will be slightly cheaper, so while is unlikely to offset all of the early repayment charge, it might cover a good chunk of it, so might be worth it for the insurance/peace of mind.

However, if your budget is that tight, you might not qualify for a new mortgage, because they have to check that you can afford a rate much higher than even 4% (7% I think) in order for you to qualify. But then again, do you see your income rising or expenses falling in the next 2-5 years, that would make an increased mortgage payment more affordable if you stayed where you are for now?

But in any case, I think rates are going to stay at or around the current levels for the short to medium term, because there's a lot of personal, business and government debt out there so almost no-one can afford to pay higher interest rates, which would further destroy the economy.

On the other hand, we've never fixed at all and it's always been cheaper to stay on a tracker, except for maybe 3 months in the last 25 years, where it was maybe 0.25-0.5% more expensive.

If you post on the mortgages forum of Money Saving Expert there are lots of number crunchers who can tell you whether it's better to do this or not.

Amazing thanks I will do that! I didn't think to look on the MSE forums

You will about £1100 if with the ERC minus the saving from lower new rate. I understand that you are looking at long term rates, but with current deflationary pressures on the economy, rates will go down now up. I really can’t see any increases in the next two years. Your mortgage is going op small for you to realize any savings from switching now, so I would say it’s best to stay put.

Thanks @sst1234 those figures really help. I think I'm going leave it for now as like you say the general consensus is that rates will remain low for the forseeable. I could even wait a year and switch then if im still having these thoughts as it will then only be a 1% early settlement fee and we will also have a lower mortgage balance too by then x

With the amount of debt the government has just taken on we HAVE to keep interest rates low. If they start increasing, the government is fucked so I would not be worrying about rates sky rocketing. High mortgage rates will be the east of your worries.