Can we move our mortgage to another property or will be incur early repayment charges for doing so?
My partner and I are considering moving home, but we are worried about incurring early repayment charges because we still have over three years to run on our fixed-rate mortgage deal. I've been told it should be possible to move my mortgage to another property during my fixed-rate period without incurring charges. Also, when we started the mortgage less than two years ago, I had a salaried job - but I have since become self-employed. Via email  On the move: This reader wants to buy a new home, but doesn't want to get stuck with early repayment charges if she moves during her fixed-rate term  Ed Magnus of This is money replies: Early repayment charges can come as quite a shock to mortgage borrowers  particularly for those looking to move home prior to their initial fixed-rate deal ending. Most fixed-rate deals come with early repayment charges, which often range between one and five per cent of the outstanding mortgage amount. A borrower locked into a five-year fixed rate deal on a 250,000 mortgage, who then decides to move or remortgage before the five years is up, could face 10,891 in early repayment charges were they to remortgage during the first year, according to analysis by financial services firm Legal & General. Despite this, only 13 per cent of borrowers see early repayment charges as an important factor when choosing their next home loan, whilst nearly two thirds consider the interest rate to be the most important element. But moving home does not necessarily mean you have to incur these costs. Lenders often allow borrowers to move their mortgage to another property without charging these fees, in a process known as 'porting'. However, there may be an issue if your circumstances have changed. It can also be problematic if you require a new mortgage to fund your new purchase - perhaps because you are an upsizer requiring a bigger loan. Even so, switching to a new mortgage deal and stomaching the early repayment charge can in some circumstances make financial sense. This is because mortgage rates have continued to hit record lows for those with significant equity already built up in their homes. HSBC became the latest lender to launch a mortgage with an interest rate less than 1 per cent, joining Platform and TSB among others. If you were previously on a much higher rate, the saving you would make on your interest payments over your new fixed term could potentially outweigh the early repayment charge - so it is worth calculating whether this would be the case. We spoke to Chris Sykes, mortgage consultant at broker Private Finance, and David Hollingworth, associate director at broker L&C mortgages, to help answer our reader's questions. Chris Sykes replies: It is possible to move a mortgage during the fixed-rate period without incurring charges. However, to completely avoid the penalty this would ideally need to be simultaneous, with no break between your sale and the completion of the new purchase. If your sale and purchase cannot be completed simultaneously, it is possible to avoid paying the penalty charge depending on your lender - but you will have a tight timeframe in which to do so. Many lenders will allow you to sell first and then bring your mortgage back to life and re-claim the early repayment charge within a 60-to-90-day period. This is a high-risk strategy, as you may not get the early repayment charge back until after completion. The rules also vary from lender to lender. David Hollingworth replies: If you need to borrow more to fund your onward purchase, 'porting' your mortgage may limit the chances of getting the very best deal on the market, as any additional borrowing would also need to be taken from your existing lender. It's therefore worth looking at whether a better rate could be available elsewhere that might outweigh the penalty. Early repayment charges will often be a percentage of the mortgage amount and they typically vary depending on how far into the deal you are. For example, it may reduce from a five per cent charge during the first year of a five-year fixed deal to just a one per cent charge in the final year of the deal. So if you're nearing the end of your fixed rate deal, it may make sense to absorb the early repayment charge if youll benefit from a substantially lower rate with a new lender, allowing you to make a saving over the remaining tie in period. Chris Sykes replies: One of the major issues when trying to port a mortgage occurs if your employment type has changed - in this case for example, having gone from employed to self-employed. When you port a mortgage, it will be treated like a normal mortgage application. Although your deal remains the same - you will have to meet your lender's criteria at the time of application. Sometimes your new income will not justify the level of borrowing that you already have with the lender. Furthermore, lender's criteria rules change over time and your lender may not offer mortgages to someone with your current circumstances. In this scenario, it may be that an early repayment charge must be paid so that you can change to a lender who will accept your new circumstances and enable you to move home. David Hollingworth replies: If your income or outgoings have changed, it could result in the lender not allowing you to move your mortgage to another property. Also, for someone that has recently become self-employed it could be challenging to provide a long enough financial track record. Typically, lenders require the latest two or three years of your self-assessment tax returns. David Hollingworth replies: Where you require additional borrowing to fund your purchase, the lender will need to check the mortgage is still affordable to you based on their standard criteria rules. If the lender won't go as high as you had hoped, it could leave you with a difficult decision - either to walk away from the purchase, or to cough up a potentially substantial early repayment charge and switch to a lender that can be more flexible. If you require no increase in the mortgage amount, then the lender may be more lenient even if you do not meet their standard criteria rules - because they can see that the mortgage payments have been met in the past. Chris Sykes replies: People can get stuck with their current lender in a vicious cycle. Often when porting, people will want to borrow more on top of their existing mortgage and this borrowing is taken out on a separate product. Only 13 per cent of borrowers see early repayment charges as an important consideration when choosing their next home loan, according to L&G. This means they may have three years remaining on their current deal, but can only take a two or five-year deal for the additional borrowing, so you end up having two products with the same lender ending at different times. This can get confusing and often people will either end up stuck in a cycle of remortgaging with the same lender, or need to pay an early redemption charge at some point on one part or another. David Hollingworth replies: If the property you are buying is not acceptable to your current lender, this could cause a problem as they will need to be satisfied that the property will offer adequate security for the loan. Some lenders can be more cautious than others so may not be able to lend on a higher rise apartment, for example, which would force a rethink on the mortgage option. Chris Sykes replies: Seek advice from a mortgage broker. They can do the maths on what is possible, both with your existing lender and elsewhere and how much each option would cost. Then a proper plan of action can be put in place, which could save you thousands if not tens of thousands in the long run. David Hollingworth replies: Try to avoid locking into a fixed-rate mortgage deal for longer than you think you will be in the property. This could give you a wider range of options across the whole market when you come to move. Porting your mortgage can avoid big charges, but if you are borrowing more, try to time the additional borrowing period to end at the same time as your existing mortgage. This way you can move the whole mortgage onto the best available deal on the market, rather than having multiple loans with the same lender all with differing end dates and early repayment charge periods.