I'm currently locked in to a 5 year fixed rate deal with Northern Rock at 4.99% - not too bad a deal but there's far better offers out there now, especially if you have a loan to value ratio below 75%. The only problem is that with 18 months still to run on it I'd normally be looking at around £5000 in redemption penalties to get out of my deal early.

BUT, there is a way out.

Northern Rock have just moved virtually all of their mortgages into a new company called Northern Rock (Asset Management) Ltd. This company will not be doing any new lending and will be gradually wound up as the loans it holds are paid off.

Since they're not doing any new lending, if you were to go to them and say,"I want to borrow an additional £3K for home improvements" then they can't do it. In this situation what they will do is to allow you to exit your mortgage with them, you pay them the redemption penalty, and then they REFUND the redemption penalty to you once you've completed a new mortgage with your new lender and can show them that you have made additional borrowing of at least £3K plus any costs.

So I'm going for a no fees, free valuation, free legal, deal with the Abbey on a 2 year Tracker at 2.75% above Bank of England base (which is currently 0.5%, and I don't reckon it'll climb high enough to make me worse off over the 2 years). I'm borrowing about £8K more than my current mortgage to cover the redemption and the "home improvements", and then when it's all sorted and the redemption is refunded I'll pay back the whole of the extra £8K to the Abbey and have saved over £120 a month on an £80K mortgage compared with my current situation - that's a saving of almost 20% and the ONLY cost is a £225 mortgage exit fee to the Northern Rock.

(Actually, I'm probably going to keep my current payment at the same level so I'm overpaying each month to shorten the term, I just need to work out the figures for the first year a bit carefully because the Abbey only allow you to overpay up to 10% of the capital in any one year.)

Good tip ink Pete. I agree with you and that rates will not rise substantially for the next 2 years. The reason why fixed rates are higher is that the financial trading markets are predicting a fast rate rise which most economists disagree with

I got my mortgage 5 years ago for BAse Rate - 0.09%, should have fixed it for a longer term. Only did 2 years

you have to be so carefull of admin charges
charging the first instalment on comencment of the morgage
early redemtion payments
search fees
requiring you to have a home buyers survey
land registry serches ect
any thing you would expect on a new house and new morgage they can ask for on a new morgage even though your in the same house

And what happens if they offer you the extra £3k

Northern Rock(Asset Management) Ltd can't counter offer the extra £3K, they're now a winding up company which is not even licenced to make new lending.

The reason for picking the Abbey deal was the free valuation, free legal (including searches and all conveyancing), no fees offer. There are deals out there with even lower rates, but they either have application fees or don't have the free valuation and legal.

The ONLY fee I'll have to pay which does not get refunded is the end-of-mortgage fee of £225 (I think they call it a sealing fee?) to the Northern Rock.

Good tip Pete , although i think rates will rise significantly next year and maybe the end of this year

I'm banking on it shooting up over the next 5year.

Bank of England base has got to go up a whole 2% within a year to make me worse off.

By overpaying the way I plan, I reckon I can bring that magical mortgage free day about an extra 18 months to 2 years closer over the next 2 years at no additional cost.

I would be looking at a base rate of 3-4% rise in the next year.

There is little evidence that rates will rise this year as the MPC (Monetary policy committee) have indicated as much although things can can rapidly as new data comes in. There is a lot of nonsence talk about Britian coming out of recession and the data used such as manufacturing output, GDP growth is very weak to demonstrate any sort of sustained recovery.

But of course rising inflation is always the worry for these boys and raising rates is their tool of choice! I think if rates are going to rise it will happen in US and EUROzone before UK.

But ys just never know. I read a lot of articles every day about what is going to happen and people seem to have little memories of all the false predictions

This time last year, conservative estimates said that house prices were going to drop a minimum of 20 - 40%, Did they b#lox

dont forget the bank base rate and the lending rate ar not so closely connected anymore

i am assuming you are on bank rate plus as a direct corrolation to your payments

And don't forget it was only a couple of weeks ago that a lot of lenders increased mortgage rates by at least 1 percent.

That's right. BoE plus 2.75% - not some linked to any lenders internal rate which they could chose to change to suit themselves.