Breaking Fixed Mortgage Penalty Calculator

When you break a fixed mortgage before the agreed term ends, you typically face early repayment penalties. This calculator helps you estimate the cost of breaking your fixed mortgage rate and understand the financial implications.

What is breaking a fixed mortgage?

Breaking a fixed mortgage means repaying your mortgage loan before the agreed fixed term ends. Fixed mortgages offer a stable interest rate for a set period, but they often come with early repayment penalties if you pay off the loan early.

These penalties are designed to compensate lenders for the lost interest they would have earned if you had stayed on the fixed rate. The penalty amount varies depending on the lender's terms and the length of the remaining fixed term.

How to calculate the penalty

The exact penalty calculation depends on the type of penalty your lender offers. Common penalty types include:

Fixed amount penalty
Percentage of remaining balance
Number of months remaining on the fixed term
Combination of the above factors

To calculate the penalty, you'll need to know:

Your remaining mortgage balance
The remaining fixed term in months
The lender's penalty structure

Fixed Amount Penalty = Penalty Amount Percentage Penalty = (Remaining Balance × Penalty Percentage) / 100 Months Penalty = Number of Remaining Months × Penalty Per Month Combined Penalty = Fixed Amount + Percentage + Months

Types of early repayment penalties

Lenders use different penalty structures. Common types include:

Fixed amount penalty

You pay a set amount regardless of your remaining balance or term. This is common with some government-backed mortgages.

Percentage of remaining balance

The penalty is a percentage of your remaining mortgage balance. For example, 2% of the remaining balance.

Number of months remaining

The penalty is calculated based on the number of months remaining on your fixed term. For example, £500 per month remaining.

Combination penalty

Lenders may combine several factors. For example, a fixed amount plus a percentage of the remaining balance.

Penalty calculation example

Let's look at an example to understand how the penalty is calculated.

Example scenario

Remaining mortgage balance: £200,000
Remaining fixed term: 18 months
Lender's penalty structure: £1,000 fixed amount + 1% of remaining balance + £200 per month remaining

Calculation steps

Fixed amount: £1,000
Percentage of remaining balance: (£200,000 × 1%) = £2,000
Months remaining: 18 × £200 = £3,600
Total penalty: £1,000 + £2,000 + £3,600 = £6,600

In this example, breaking the fixed mortgage would cost you an additional £6,600 in penalties.

When to break a fixed mortgage

Breaking a fixed mortgage can be financially beneficial in certain situations. Consider breaking your fixed mortgage if:

Interest rates have fallen significantly
You need to access equity for home improvements or other expenses
You're moving to a more expensive property
You want to refinance for a better deal

However, breaking a fixed mortgage early may not always be the best financial decision. You should carefully weigh the costs and benefits before making a decision.

FAQ

What is the average early repayment penalty?: The average early repayment penalty varies by lender and mortgage type. Some lenders charge a fixed amount, while others charge a percentage of the remaining balance or based on the number of months remaining.
Can I negotiate the early repayment penalty?: In some cases, you may be able to negotiate with your lender to reduce or waive the early repayment penalty, especially if you have a strong relationship with them or can demonstrate financial hardship.
Is it always better to break a fixed mortgage?: Not necessarily. Breaking a fixed mortgage early may not always be the best financial decision, especially if you're locked into a very low fixed rate. It's important to carefully consider the costs and benefits before making a decision.
Can I break a fixed mortgage without paying a penalty?: Some lenders offer penalty-free breaks, but these are rare. Most fixed mortgages include some form of early repayment penalty. It's important to check your mortgage terms and conditions to understand the penalties you may face.
What happens if I break a fixed mortgage?: If you break a fixed mortgage, you'll typically be switched to a variable rate or another mortgage product offered by your lender. The exact terms will depend on your lender's policies and the market conditions at the time.