Is it worth paying my early repayment charges to secure a lower interest rate?

Monday 21 November 2016 | 02:29 PM

This is a question many people are asking following the recent fall in interest rates.


Most mortgage products, whether fixed or discounted variable rates, apply early repayment charges for an initial period - this protects banks and building societies against customers switching their mortgages too frequently and therefore making the business unprofitable.


The actual charges vary hugely between lender to lender and even between different type of interest rate with the same lender.


Each individual case will require detailed analysis but an annual review covering the following is worth consideration: -


  • Existing interest rate charged.
  • Early repayment charges applicable.
  • How long before the charges expire.
  • The standard variable rate which applies at the end of the current fixed or discounted rate.
  • New interest rates and type of rate available.
  • Customer circumstances such as how long any new interest rate and early repayment charges can apply for.


Whilst it will go against natural instinct to pay a penalty charge, in some cases the payment of these charges can make financial sense due to the amount which can subsequently be saved on the new lower mortgage payments.


In addition, a further consideration (if your circumstances suit this option) is that by taking out a new medium term fixed rate, you are able to secure longer term protection against any future interest rate increases which are expected to follow at some stage soon.


This is a complex area with many variables, so expert mortgage advice from across the market is vital.


Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at or or call 0191 223 3514.


Think carefully before securing other debts against your home.


Your home or property is at risk of repossession if you do not keep up repayments on a mortgage or other loan secured on it.


Innovate Mortgages and Loans is a trading style of Innovation Financial Management Ltd.