Should I let my fixed-rate mortgage term end without negotiating a new deal?

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Q My three-year fixed-rate mortgage ends at the beginning of April 2023. At that point my mortgage balance will be £83,000. My husband and I have approximately £63,000 in accessible savings, so I’m wondering if it’s worth letting the fixed-rate term end without negotiating a new deal. I think doing this would allow us to use our entire savings to pay off a large chunk of the mortgage without any penalty fees. We’d then have about £20,000 on the mortgage on which we would be charged the follow-on-rate of 5.5%. If we did this, as well as avoiding a repayment penalty, we’d also dodge having to pay a fee to arrange a new fixed-rate deal. Plus, the amount of interest paid a month would obviously be less since the overall debt would be a lot smaller. But I’m not sure if I’m being naive, and perhaps making a decision to move on to a follow-on rate without negotiating a new deal is risky. Might I be missing a trick? It’s worth noting that myself and my husband are both self-employed, and this would obliterate our savings – but having such a small mortgage on our London home would also be good peace of mind.

A Are you sure that your lender’s follow-on – or revert – rate is still 5.5%? The reason I ask is that there has been a lot of movement in mortgage rates recently so it might be worth checking again before you make a final decision.

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The trick that you are missing is the fact that not all fixed-rate mortgage deals make you pay a fee for the pleasure of arranging them. For example, of the five two-year deals listed by Moneyfacts in its most recent mortgage selections, only one has a fee that is a typical £995. So you could arrange a much better rate than your lender’s follow-on rate and still dodge an arrangement fee.

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I can see that reducing your mortgage to as small an amount as possible is an attractive option. However, I don’t think that obliterating your savings would necessarily bring you peace of mind especially if it gave you nothing to fall back on were your self-employed earnings to fall. Maybe a compromise is called for whereby you use part of your savings to reduce your mortgage debt but keep back as much as you need to tide you over in a rough patch.

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