The Mortgage Clinic: 'I want to sell up but it will cost a fortune in fees'
'I'm selling my house, but my building society tells me I'll have to pay them more than £2,000 – as I'll have to pay 3 per cent of my mortgage balance as a penalty. I bought the house in February 2006 on a two-year fixed-rate deal, and with that kind of fee, I'll end up owing more than the original loan, even though I've been paying it off for 16 months. Can this be true?' CM, by email
Fixed-rate mortgages are a trade-off. You know how much you'll pay for the next two, three or five years, but the deal is that you stick with the mortgage for that term. If you don't, you'll get stung by the early redemption charge.
From the point of view of the lender, it seems logical. They incur costs from arranging the loan on the wholesale financial markets – if you pay off your mortgage early, they can't lend that money to someone else.
Charging penalties also allows mortgage companies to offer very attractive rates. As Melanie Bien, director at mortgage brokers Savills Private Finance points out, base rates are now at 5.5 per cent and could rise to 5.75 per cent. Your fixed rate is below the base rate, so you have already saved money on your monthly interest bill.
That said, you may be able to avoid this charge – or even get the fee added to your new mortgage. First, check if you can "port" your mortgage to the new property. Almost all lenders allow this with fixed rates, as long as the property meets their valuation rules and your earnings can still cover the loan. This is likely to be your cheapest option, as the fee for transferring the mortgage should be quite small.
If you need a larger loan, talk to your lender or an independent mortgage broker. It could well be that they can offer a second chunk of financing, in addition to transferring your existing fixed rate. The additional borrowing could be on another fixed rate, or you could look at tracker or capped-rate loans.
Take advice, because you'll need to look at the cost of arranging new loans once your existing two-year fixed-rate mortgage expires, and these fees can be expensive.
If none of these options work, at least property prices have moved in your favour. "Prices have risen considerably since February 2006 when you bought your property, so you'll be able to cover the fee out of the extra equity in your home," says Ms Bien.
Confused about your mortgage options? Forxed by jargon? E-mail firstname.lastname@example.org
Note: we will not reveal your identity, and we cannot give specific advice
- 1 'He was lucky he didn't die' - George Michael fell out of speeding car onto M1 motorway, according to eye witness
- 2 Austerity has hardened the nation's heart
- 3 Gay couple beaten in park urge MPs to moderate language on gay marriage
- 4 Why Arsène Wenger must spend to put icing on the cake and buy likes of Stevan Jovetic for Arsenal
- 5 'It was just like the movie Twister': Man survives Oklahoma tornado by taking refuge in horse stall
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Win anything from gadgets to five-star holidays on our competitions and offers page.
iJobs Money & Business
£180 - £230 per day: Orgtel: Operations Analyst - Leading Bank in the City of ...
£500 per day: Orgtel: A top tier banking client urgently requires Finance Busi...
£425 - £550 per day: Orgtel: Senior Finance Project Manager - £550 - Bristol -...
£150 - £250 per day: Orgtel: KYC Analyst - London - Banking - £150-250/day C...
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.