Fixed-rate mortgages can be a good choice for homeowners, as it allows them predictability and can help them budget for the long-term. However, fixed rate mortgages can cause problems for homeowners wishing to move and sell. Many homeowners are concerned about the financial consequences they may have for breaking their mortgage contract early. Others, meanwhile, may want to keep their current mortgage rates and terms yet are worried about having to renegotiate them.
This guide explores all you need to know about what a fixed rate mortgage is and how homeowners can go about selling a house during a fixed term mortgage.
What Is a Fixed Mortgage?
A fixed mortgage is a mortgage in which the interest rate remains the same throughout the duration of the loan, as opposed to variable rate loans which have a fluctuating interest rate. These types of loans can give borrowers peace of mind that their monthly mortgage payments will remain the same, regardless of inflation, and makes managing money easier. These are the most common types of mortgage loans, with borrowers typically opting for 2 – 5 years of fixed mortgage rates.
Can You Sell a House If You Have a Fixed-Rate Mortgage?
If you are in a fixed rate mortgage, you can still sell your property. However, it could end up costing you, especially if you are still in your introductory rates period.
The only difference when selling a property that has a fixed rate mortgage secured against it is that you are likely to be hit with an early repayment charge. This tends to be a percentage of the outstanding loan balance and must be paid to your mortgage lender in the case that you wish to pay off your mortgage early or remortgage during the fixed rate period of your existing mortgage deal.
How Much Does an Early Repayment Charge Cost?
Early repayment charges can be anything from 1% to 5% of your outstanding loan balance, depending on your lender and loan terms.
Some fixed rate mortgage products do not include an early repayment charge, but these are often the minority. Meanwhile, some homeowners choose to avoid this fee by waiting until their fixed interest rate period ends and delaying their move until their mortgage is at the lender’s standard variable rate.
Depending on your loan, your introductory rate period for your fixed rate mortgage could be anywhere between two and five years. The longer you go into your fixed period, the more expensive it will likely be to end the mortgage agreement early.
Can You Carry Your Fixed Rate Mortgage to Another Property?
You can move a fixed rate mortgage to another property – a process which is known as ‘porting’ a mortgage. If you wish to do this, it is likely that your lender will want to carry out their mortgage affordability checks again. This means that even though your rates and terms will be the same, you will essentially be reapplying for your loan.
The affordability check, just as it did initially, will likely include looking at your credit history, debt to income ratio, age, number of dependents and eligibility. Lenders will also take into account the type of property you are wanting to move to and what condition it is in.
If you are porting to a more expensive property, it can be more complicated and more expensive as you will likely need to borrow more. Lenders may choose to charge you an extra fee in order to increase your loan and are likely to also charge a valuation fee to see how much your new property is worth.
Porting to a cheaper property can actually save you money; you will likely end up with a smaller debt, avoid extra fees incurred for borrowing more, and will negate the need to pay an early repayment charge. However, your lender will still want to reassess your eligibility and carry out a valuation on the new property.