Can I fix my mortgage if I have to pay less than £20,000? DAVID HOLLINGWORTH RESPONDS

My £32,000 mortgage has a fixed rate for five years and ends on 31 March 2025. By then I will have around 18 months left in my term and my mortgage is expected to be paid off in September 2026.

I may have the option to pay a little sooner if I retire early and use a lump sum from my pension.

Should I try to negotiate a new fixed rate now, for the remainder of the mortgage?

I’m aware that NatWest won’t offer me any goodwill on repayment costs, but I’m wondering if paying the charges will still be cheaper than moving to a higher standard variable rate for the remaining 18 months once the term ends. SA

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David Hollingworth replies: Clearly, it will always make sense to pay as little interest as possible until the end of the deal.

However, the dynamic changes a little as you get into the later years, especially since the mortgage balance is much smaller.

The good news is that your current rate is lower than what you could get in today’s market, since it applied before interest rates started rising.

As a result, you’ll still enjoy the protection of a fixed rate that will be the envy of anyone who has had to renegotiate their rate recently.

You mention the cost of redeeming the mortgage and there will almost certainly be early repayment charges (ERC) if you take another fixed rate period.

These are part of the terms of the agreement to protect the lender from borrowers abandoning a rate if rates change.

It’s always worth checking the specifics of your product, but Natwest offers would typically apply a reducing ERC over the fixed rate term.

In the last two years of a fixed rate period, you could often see an ERC of 2 percent falling to 1 percent in the last year.

Although this may seem like a relatively small cost when applied to your balance, you’ll also find yourself moving to a higher rate than the one you currently benefit from, so there shouldn’t be a compelling reason to ditch the current rate and pay a higher rate. penalty fee. now.

No options: The size of our readers’ mortgage may mean they won’t be able to refinance with a different lender when their fixed deal ends.

Existing or new lender?

You have a limited range of options at the end of the fixed rate period.

Your mortgage balance will have reduced further over that period and looks likely to be less than £20,000 at that time.

Natwest will not be able to offer a comparable new deal as the remaining term will have very little time for another deal to take place in the final 18 months.

That would put you back at the lender’s standard variable rate (SVR), currently 8.24 per cent.

Switching to a new lender will also be more limited, with many requiring a minimum balance of £25,000 and a minimum term of five years.

> How to remortgage your house: a guide to finding the best deal

cost conscious

With a rapidly dwindling balance, you’ll need to be very aware of costs and fees.

Although lenders’ SVRs are much higher than other deals on offer, any costs of moving to a new product must be taken into account.

The new arrangements may carry a fee of around £1,000, but that would clearly be a much bigger burden for a small mortgage.

The lower the mortgage balance, the more important it is to avoid fees. Fortunately, lenders usually have a variety of options with low or no fees, but a slightly higher interest rate.

Even then, switching to a new lender can come with some administrative costs that could easily erode potential profit.

> True Cost Mortgage Calculator: Check what a new fixed rate would cost

Higher rates in the future: Our reader is aware that if they do not pay off the mortgage early, they will face higher rates when their fixed agreement ends next year.

Overpayments

You could consider extending the term with Natwest, which would then allow you to select a new agreement when the current solution ends.

The disadvantage is that it would prolong the life of the mortgage and increase the total interest payable.

Natwest offers the option to overpay up to 20 per cent of the mortgage balance each year without incurring any ERC.

That would allow it to make more pronounced progress and mitigate the impact of a long deadline.

Alternatively, you could consider overpaying for the remainder of the current low rate, so you’ll have an even lower balance if you decide to let the mortgage eventually return to the higher SVR.

> When will interest rates fall? Forecasts on when the base rate will drop