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Should I pay my early redemption fees and switch my mortgage?

In amongst the torrent of what feels like an ever-present cycle of broadly depressing news, you may well have picked up on something that many will view (say it quietly) as positive. And that’s the continual decline in mortgage rates over the last six months or so.

It seems that not a day goes by without one lender or another announcing that their rates are decreasing. We’ve lost count of the number of times we received an update from a lender declaring their rates to be the lowest that they have been since records began (does anyone actually know when records began?)

Just how far rates have dropped has taken more or less everyone by surprise. At eddge HQ, we like to think we’ve got a good handle on the market and what’s around the corner, but even we’ve been surprised by the depth of the recent rate drops.

Perhaps unsurprisingly, this has led a good number of our clients to ask us what we are now referring to as the big question. And that is whether they should pay up their current early redemption charges and switch into a new deal. So, we thought it would make an excellent topic for our inaugural newsletter.

A word before we begin. As with so much of life, there simply isn’t a one size fits all answer to this question. There are so many different factors and nuances that go into whether or not this may be a good course of action for you, that the best advice we can offer is to talk to us. Because the best advice we can give you is advice that’s solely dedicated to you. That being said, here’s a little high-level food for thought.

In general, it is rarely cost effective to pay an early redemption charge and switch your mortgage. The cost of redemption is normally pretty steep. So, even if you can save 1% on your rate, that isn’t normally going to be enough, in most cases, to mean you are better off over the course of the loan.

Another point a number of our clients have made is whether they should take the early redemption hit now and lock into a low rate, because when their current deal ends in 12 or 18 or (insert your own date range) months’ time all rates could be higher. This way, they’d effectively recoup some (but not all) of the money spent on paying the redemption charges, but be in a much better position than if they stayed with their current deal and rates had significantly increased by the time they needed to arrange a new deal. Of course, there is some merit in thinking about this, but its success as an overall plan is very much reliant on rates going up. And, not by just a little.

But, of course, if rates don’t rise significantly, chances are you will be worse off. For us, we think it’s a more sensible approach to base decisions on what we categorically know now, rather than predicting what might happen. Because, chances are, it probably won’t. If the last 18 months has taught us anything, it’s that predictions are a dangerous game.

Now, of course, there are exceptions to the rules. There always are. Chief amongst these is a change in circumstances. If your current mortgage is with a non-standard lender and you feel you would qualify as standard borrower now, then there’s more of chance that a switch could be a sensible thing to do. Or, if your loan to value (LTV), for whatever reason, has dramatically improved, it may be worthwhile having a look at what is out there. But that’s about it. As we said, these are exceptions, not the rule.

So, we’ll end as we began. If you want to talk about whether it may be an option for you then please just get in touch with your consultant. They can review your specific situation with you and decide if it’s worth pursuing. You’ve not doubt got their contact details but, because we’re in the business of being helpful, you can find them a little further below.

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