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How to get out of 5 year fixed mortgage

June 5, 2021
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Leaving a fixed term mortgage early is certainly possible, but not always advisable. When you sign up for a fixed rate mortgage, you’re agreeing to the term, and exiting early can lead to some hefty fines. If the cost outweighs the potential savings, you could be better waiting out the end of your agreement.

These fines are simply early repayment charges, and they are likely to be payable on any mortgage, but always check the fine print. If you think you can get a better deal elsewhere, or if you want to repay your mortgage early, read on to learn how to get out of a 5-year fixed mortgage.

What is a fixed rate mortgage?

A fixed rate mortgage gives you some stability for the agreed term. A standard variable mortgage will mean that the interest rate is set by your bank, and heavily influenced by the Bank of England Base Rate. With a fixed rate mortgage, you’ll know exactly what your mortgage interest rate will be for the lifetime of the mortgage agreement.

This can work to your advantage, particularly if interest rates rise. When interest rates increase, those on variable rate mortgages will see their monthly repayments go up. A fixed rate mortgage protects you from price increases. However, if interest rates fall, you won’t be able to take advantage of lower monthly repayments.

Some people prefer fixed rate mortgages because it gives them some stability. They know exactly what they will pay every month. But with a fixed rate mortgage comes a fixed term. This means that you agree to keep the mortgage product for an agreed term. 2-year and 5-year fixed term mortgages are the most common.

Can you break a fixed term mortgage contract?

You can get out of a fixed term mortgage contract, but this will come with a fee attached. If you want to sell your home or remortgage to get a better rate, you will essentially be paying back your mortgage early.

Nearly all mortgages will have an early repayment fee attached. The early repayment fee covers the lost interest payments that banks suffer when borrowers repay their mortgage early. So you can get out of a fixed term mortgage, but you can expect to pay an early repayment fee so it’s important to understand the costs.

With a £200,000 mortgage remaining, you could face an early repayment charge of up to £10,000. This could wipe out any potential savings, so it’s important to consider the full cost of leaving your agreement early.

How much does it cost to break a fixed mortgage?

The early repayment fee will vary depending on the lender and the type of mortgage. The fee is typically a percentage of the remaining balance of the mortgage, usually around 1-5%.

If this amount of more that you could save by switching to another product, you might be better staying put. If you need to move house, you might have to accept that an early repayment fee is unavoidable. Always check the fine print, as a small number of lenders don’t have early repayment charges, so you would be able to leave your agreement without consequence.

What happens if I leave a fixed rate mortgage early?

The only consequence of leaving a fixed rate mortgage early is that you will need to pay the early repayment charges. You won’t damage your credit score or face any negative consequences from your lender or future lenders.

You must weigh up the full cost of leaving your fixed rate mortgage early, particularly if you are remortgaging. You may face early repayment fees on top of arrangement fees for your new mortgage. Unless you are switching to a much better mortgage deal, you might be better staying put until the end of your agreement.

At the end of your fixed rate mortgage agreement, you will very likely be moved to your lender’s standard variable rate. You will then be free to remortgage, sell the property or increase your monthly payments to pay off the mortgage sooner.

Can you sell a house with a fixed mortgage?

Yes, it is possible to sell a property with a fixed rate mortgage in place, but it will come with a cost. Once the home sells, the early repayment charge will be deducted from the proceeds of the sale.

You don’t need to let the buyer know that you are on a fixed price mortgage, but if you are thinking about purchasing another property, you might need to consider what you can afford once you factor in the cost of paying the ERC.

If you’re shopping around for a better deal, we can put you in contact with the brokers who can help secure the best possible deal. We’ll help you calculate your early repayment charges and determine if getting out of your fixed term mortgage early will be beneficial.

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