Should I forgo my fixed rate mortgage for a longer deal?

I have one year remaining on my two year fixed rate mortgage. I am currently paying 1.16 per cent on £300,000.

Should I abandon my trades and close a new trade if the prices go up further? And, Lincolnshire

Ruth Jackson Kirby replied: What a week for mortgages. More than 1,000 were pulled from the market – the highest number ever recorded in one week. Interest rates have risen on those who remain as lenders grapple with uncertain interest rate expectations.

When you fixed your mortgage, there were deals of less than 1 percent. Today, some two-year repairs are higher than 5 per cent, amounting to thousands of pounds in extra interest payments each year.

You can check which fixed rate mortgage deals can be offered to you and how much they will cost based on the size of your mortgage, the value of the house and how long you want to fix it. With our best mortgage rate calculator, powered by L&C.

You are not alone in wondering what to do. You’re in the lucky position of being locked into a low rate, but when you hit the remortgage, you’ll likely find your payments skyrocketing.

The question is whether that day should be brought forward for a year with the expectation that rates will continue to rise, making it cheaper to secure a new mortgage now.

First, you need to consider early repayment fees (ERCs), which most lenders charge if you get out of the deal early. It is usually charged as a percentage of the outstanding balance and tends to be between 3 and 5 percent.

However, some ERCs are located over the course of the mortgage. For example, in a five-year reform, redress and reconciliation rates could fall by a percentage point each year from 5 to 1 percent.

It’s important to investigate what an ERC is to help understand the penalty for walking away from a deal, says David Hollingworth, associate director at mortgage broker L&C. It also makes sense to check if it is set to go down in the near term, as this could cause it to drop by a percentage point, which in your case could save you £3,000.

Ultimately, you have to decide what you think will happen to interest rates in the next few months.

If you think it will continue to rise, you may decide it’s worth getting into a deal now rather than waiting a year only to find much higher rates.

However, the making of this call baffles even mortgage experts and economists. Financial markets currently expect the Bank of England to raise the base rate – upon which the cost of all debt is based – to 4 per cent this year and possibly 6 per cent by the summer. Mortgage rates are likely to be at least one or two percentage points higher.

However, market expectations move wildly, so they can easily change in the coming weeks. The best fixed rate mortgages rose significantly last week in anticipation of higher interest rates in the future.

“Whether it makes sense to fix now is a question that can only be answered with the luxury of hindsight,” says Hollingworth.

“We simply don’t know what could happen with price action in the future. If the rapid pace of current changes tells us one thing, it’s that things can turn around in a very short period of time.

If you stick with your current deal, you can use the money that would have gone to the ERC to pay off your mortgage more than necessary. Most of them allow you to overpay up to 10 percent without incurring any fees.

Overpayments while your interest rate is low will have a greater impact as more money will go towards liquidating the principal you owe and less on interest payments.

Then, when it’s time to remortgage, you’ll need to borrow less.

You can usually shop for a new mortgage long before your current deal expires, as most offers are valid for up to six months. This may protect you from some interest rate hikes and you won’t have to pay an early payment penalty.

Plus, if interest rates drop in the intervening months, you can shop around for a different deal and forgo the offer without penalty.

If you switch early, keep in mind that your monthly payments will go up significantly — even if not by as much as they might if you waited another year to switch.

You’re currently paying £1,153 a month on your mortgage, and you’ve got 24 years left on that.

If you switch to a top two-year solution now, you can get 3.5 per cent from Reliance Bank, which could bring your payments down to £1,542 a month. Over the next 12 months this will cost you an extra £4,664, plus a £995 arrangement fee.

If you switch to one of the top five-year solutions at 3.67 per cent, payments will rise to £1,568 a month and cost an extra £4,980 over the next 12 months. This is with Danske Bank and there is no arrangement fee.

Fix for ten years with Lloyds at 3.88 per cent and you’ll pay an extra £5,394 over 12 months, with no arrangement fee.