The Mortgage Clinic: Your questions answered

Interest rates went up twice last year and I've read predictions that they could rise again in the next two months. A year ago, I took out a discount mortgage, so my rate goes up with each Bank of England rise. I could pull out and move to a fixed-rate deal, but I may have to pay penalties. Is it worth moving?
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The Independent Online

'Should I pay the fees and move to a fixed rate?'

HS, Clapham, London

Many commentators think that at least one more rate rise is on the cards, but no one can say where rates will go in the next two years. You'll have to make an educated guess to decide which option is best for you, but first, let's look at how to make the decision.

Anyone with a mortgage of more than £70,000 to £80,000 has a good chance of saving by switching, according to David Hollingworth, a director at the mortgage broker London & Country. But for smaller mortgages, the fees may make it not worthwhile.

Step one: come up with your best- and worst-case scenarios, and work out how the rates changes will affect you using an online mortgage calculator.

Then look at the small print. Is the "discount" rate pegged to the Bank of England's base rate (a "tracker" mortgage) or to a figure that the lender sets? The last time the Bank of England increased its rate, several lenders put up their standard rates by more than that increase, so you may need to factor that in.

If it looks like you should switch, next you need to consider those fees. A few years ago, the booking fee for a fixed-rate mortgage was £300. Now, there are mortgages costing more than £1,000 up front, and many that cost £600.

That needs to be factored in, plus the cost of solicitors and a valuation. Most lenders now charge an exit fee, too. This is separate from redemption penalties, and can cost up to £300.

Next, you need to look for a good fixed-rate deal to compare this with. London & Country says that five-year fixed-rate loans have not changed much since last autumn, with the best rates at between 4.95 and 4.99 per cent (the Portman has a five-year fixed rate at 4.99 per cent, for mortgages up to 95 per cent - the fee is £699).

Two-year fixed-rate mortgages have also edged upwards. You can speculate what you would save if you switch, but remember that this is all guesswork. You may decide that you're better off where you are. Perhaps that's not surprising: future rate rises are factored in to fixed-rate mortgages - just like you, banks want to make themselves future-proof, too.

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