Worried homeowners on fixed rate mortgages with early repayment charges are being offered a new online calculator tool to help them decide if it is worth paying eye-watering exit fees to get a new deal before yet more interest rate rises kick in.
Cost-of-living champion Nous.co has launched the free calculator nous.co/refix after the Bank of England base rate jumped by half a point to 1.75 per cent on Thursday.
With interest rates now rising at the fastest rate since 1995, and markets expecting them to double again over the next year, 6 million households on fixed rate mortgage deals secured when rates were low now face a ticking time bomb when they come to refinance.
Worse still, many mortgage brokers have never experienced such market conditions and worry about advising owners to pay the certain cost of large early cancellation fees in return for an uncertain future gain–even if doing so would allow owners to lock in rates before they rise still further.
To explore their options, users of the nous.co/refix calculator enter their current outstanding loan, the term left, their repayments and the quantum of their early repayment exit charge.
The calculator works out their future repayments at a range of projected interest rates so that users can work through a range of different scenarios to help inform their decision.
Nous.co CEO Greg Marsh has called on mortgage lenders to waive their early cancellation fees. He said: “Many people took out these fixed deals when rates were very low. Nobody – including the Bank of England – forecast that they would rise so rapidly, and homeowners are facing a terrifying crunch on top of all the other cost-of-living increases.
Nous estimates that a household set to refinance a typical £250k mortgage this time next year will likely see its payments increase by more than £400 per month.
“The calculations to do this are difficult and complicated, plus many mortgage brokers are struggling to give people good advice. That’s why we built a free calculator to help homeowners explore their options.
“We haven’t had a period of rapidly rising interest rates in a generation - and people – including mortgage brokers – are unfamiliar with how to deal with it. It is hard for them to advise homeowners to incur a certain cost with an uncertain benefit. What’s more, the advice and tools online aren’t set up to address this problem.
“The internet only existed in research labs of universities the last time this happened.
The Nous calculator does not provide financial advice, but the free calculator can give people an idea of what the trade-offs might look like in making what for many will be a difficult and complicated financial decision. Nous advises people to consult their mortgage broker and/or seek professional advice before making a decision.
Terrified mum-of-two Lydia Joseph has decided to blow all her family’s savings to pay the £12,000 exit fee on her mortgage to take out a new fix after weeks of sleepless nights.
Researcher Lydia, from Faversham, Kent, says: “I felt I was being held hostage by my lender. I didn’t know whether to stick with my current deal or to twist in the hope of saving money in the future.
“If I had waited till when my current deal ends next year the new repayments then are likely to be more than half my take-home pay – or even more if interest rates go through the roof.
“After putting my details into the nous.co/refix calculator I decided to bite the bullet, pay the £12,000, and switch.”
Lydia, 43, has been paying £1,718 a on a three-year fixed deal at 2.08 per cent which expires in April next year. After buying herself out of that, she was able to get a seven-year fix at 2.7 per cent.
Her new monthly repayment will be £1839.30, an increase of £123.17. The Nous calculator showed her that if rates in the future rise to 4%, her repayments would have been £2129.17, or £2619.10 if they rose to 6% -- half her take-home pay.
Lydia added: “The mortgage broker I spoke to wasn’t even willing to discuss this problem with me. It was such a help to have all the complicated calculations done for me. It allowed me to make the best possible decision – hard as it was – to hopefully keep our family solvent in the future.”
