Can I repair my mortgage if there’s lower than £20,000 to repay?

My £32,000 mortgage is on a fixed rate for five years, ending on 31 March 2025. By that time I will have about 18 months remaining on the term with my mortgage anticipated to be paid off in September 2026.

I may have the option to repay slightly earlier if I take earlier retirement and use a lump sum of my pension. 

Should I try and negotiate a new fixed rate now, for the remaining time left on the mortgage?  

I am conscious that NatWest will not afford me any goodwill on the redemption costs, but I wonder if paying the charges will still work out cheaper than moving on to a higher standard variable rate for the remaining 18 months once the term does end. S.A.

SCROLL DOWN TO FIND OUT HOW TO ASK DAVID YOUR MORTGAGE QUESTION 

David Hollingworth replies: Clearly it will always make sense to pay as little interest as you possibly can through to the end of the deal. 

However, the dynamics do shift a little as you enter the final years, not least because the mortgage balance is a lot smaller.

The good news is that your current rate is lower than you could get in the current market, as it was taken before interest rates began to climb. 

As a result, you are still enjoying the protection of a fixed rate that will be the envy of anyone that has had to renegotiate their rate recently.

You mention the cost of redeeming the mortgage and it’s almost certain that there will be early repayment charges (ERCs) if you took another fixed rate period. 

These are part of the terms of the deal to protect the lender from borrowers exiting a rate if rates change.

It’s always worth checking the specific detail for your product but Natwest deals would typically apply a reducing ERC over the term of the fixed rate. 

In the final two years of a fixed rate period that could often see an ERC of 2 per cent falling to 1 per cent in the final year.

Although that may sound like a relatively small cost when applied to your balance, you would also find yourself switching to a higher rate than you currently benefit from, so there shouldn’t be a strong reason to ditch the current rate and cough up a penalty now.

Existing or new lender?

You have a limited range of options at the end of the fixed rate period. 

Your mortgage balance will have reduced further in that period and looks likely to be less than £20,000 at that point in time.

Natwest will not be able to offer a new like-for-like deal, as the remaining term will have too little time for another deal to run its course in the final 18 months. 

That would see you revert to the lender’s standard variable rate (SVR), currently 8.24 per cent.

Switching to a new lender will be more limited as well, with many requiring a minimum balance of £25,000 and a minimum term of five years.

> How to remortgage your home: A guide to finding the best deal

Cost conscious

With a rapidly reducing balance, you will have to be very conscious of costs and fees. 

Although lender SVRs are a lot higher than other deals on offer, any cost to move to a new product needs to be factored in.

New deals can carry a fee of about £1,000, but that would clearly be a much bigger burden on a small mortgage. 

The smaller the mortgage balance the more important it is to avoid fees. Thankfully lenders will usually have a range of options with low or no fees, but a slightly higher interest rate.   

Even then, switching to a new lender may come with some administration costs which could easily erode potential benefit.

> True Cost Mortgage Calculator: Check what a new fixed rate would cost 

Overpayments

You could consider extending the term with Natwest, which would then allow you to select a new deal when the current fix ends. 

The downside is that it would prolong the life of the mortgage and increase the total interest payable.

Natwest offers the option to overpay up to 20 per cent of the mortgage balance each year without incurring any ERC. 

That would allow you to make sharper inroads and mitigate the impact of an extended term. 

Alternatively, you could consider overpaying during the remainder of the current low rate, to have an even smaller balance if you decide to allow the mortgage to ultimately revert to the higher SVR.

> When will interest rates fall? Forecasts on when base rate will go down