Fixed Interest Rates

Does anybody know what happens if you have a mortgage with a fixed interest rate and you make overpayments or lump sum payments against the capital?

I know that if you break the fixed term to move bank or change to variable rate you have to pay the difference, and I assume that if you redeem the mortgage within the fixed period you would have to do likewise, so it would make sense that if you make overpayments during this time that they would still charge interest on the anticipated principal amounts during that time.

E.g. repayments on fixed rates are 1k per month in Jan that’s say 605 interest and 395 prinicpal and in Feb it’s 600 interest and 400 principal. If you pay 20k off in Jan, which on a variable rate would bring you down to say 500 interest in Feb, do you still pay 600 interest in that February payment?

I ask because it seems to me that while the financially prudent thing for people to do now is to fix their interest rates to hedge against the possibility (some say certainty) of increases in the ECB rates and the possibility (ditto) of the banks increasing their margins next year, it also seems that fixed rates also disincentivise prudence in the form of overpaying your mortgage, early repayment etc.

Oh, and Merry Christmas etc.

Yup. A fixed rate is good for borrowers, which is why lenders make you pay a premium for it. It’s about trying to force people to stay on variable rates. I found the same thing when my fiancee was looking at switching to a fixed rate.

Many happy returns.

Lump sum repayments are generally not accepted with fixed mortgages as the repayments, as well as the interest rate, are fixed for the duration. However, with institutions looking to grab all the money they can if you have a lump sum then approach them to see what they might offer you in return. Maybe an extended fixed rate at a low interest rate or maybe even a tracker. No harm in asking and your the one in control, not the bank.

Cheers Gaius and KN, it seems that the deck really is stacked against financial prudence - you either run the risk of variable rates or can’t make any overpayments