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  • FIRST POST
    • OXFORD_SMOGGY
    • By OXFORD_SMOGGY 18th Aug 16, 12:16 PM
    • 497Posts
    • 110Thanks
    OXFORD_SMOGGY
    Help on remortgaging calculations
    • #1
    • 18th Aug 16, 12:16 PM
    Help on remortgaging calculations 18th Aug 16 at 12:16 PM
    Hi all I've come to the point of my first remortgage ever, Ive used the tool but I dont want to be lazy and assume that is right, so here is my situation. I think it is better to come out of my fix early and switch now we are under the 80% LTV and the interest rates have significantly dropped. I'm in a position where we are able to pay slightly more.


    House value- 400,000 (based on recent sales in street)
    Purchase price- 350,000
    Mortgage debt- 307,455
    LTV- 77%


    Current mortgage- HSBC 2 year fix August 2015-August 2017 @ 3.29%
    Early repayment fee- 3000
    Current monthly payment- 1542
    Current payments based on 25 year total


    New proposed mortgage- HSBC 2 year fix August 2016-August 2018 @ 1.44%
    Setup fee (inc valuation)- 1750
    New monthly payment- 1623
    Payments based on 18 year total.

    From the tool it recommends only switching if I get a rate of less than 1.71% which this comfortably beats.

    My questions
    1-What is the simplest way to work it out, based on spend over 2 fixed years compared between the 2?
    2-I have 10,000 sat in 5% current/saver accounts, should I be using this to overpay? I know it is suggested if you are getting more interest on saving over mortgage it is better to save, but I cant see why, overpaying will save me thousands in the long run but my savings are only accruing 500 a year in comparison!
    3- Is is wiser to add early repayment charges to the mortgage or pay off with savings?
    4- Should I actually just reduce my monthly repayments and put more into high interest accounts?
    5- Is it wise to remortgage now or should I wait for the last cut in interest from the Bank of England to come into effect on 1st of September?

    Thank you kind souls
    Last edited by OXFORD_SMOGGY; 18-08-2016 at 1:13 PM.
    Printing money since 2008
Page 1
    • fewcloudy
    • By fewcloudy 18th Aug 16, 12:56 PM
    • 116 Posts
    • 59 Thanks
    fewcloudy
    • #2
    • 18th Aug 16, 12:56 PM
    • #2
    • 18th Aug 16, 12:56 PM
    2-I have 10,000 sat in 5% current/saver accounts, should I be using this to overpay? I know it is suggested if you are getting more interest on saving over mortgage it is better to save, but I cant see why, overpaying will save me thousands in the long run but my savings are only accruing 500 a year in comparison!
    Originally posted by OXFORD_SMOGGY

    But 500 a year also equals thousands in the long run doesn't it?


    If you overpay your mortgage you are basically paying back your debt to whoever lent you the money. And that lender is charging you interest (but only at 1.44%). So it seems straightforward from a mathematical view that it would be better to put the money into an account that pays 5% interest, and use that to one day pay off your remaining mortgage debt early.

    But it isn't just a mathematical/economical choice IMO. When you overpay, the money has gone each month and is no longer available/tempting to spend. No matter what you'd LIKE or NEED in the future years, you can't 'dip-in' to the money you overpayed with, it's gone. But you could if it's sitting there in a bank account.

    You also get to see your mortgage debt reducing in real time.


    The other things you ask I'm not sure about, sorry.

    fc
    Last edited by fewcloudy; 18-08-2016 at 12:59 PM.
    Feb 2008, 20year tracker with Sproggit and Sylvester, 0.5% + base for 2 years, then 1% + base for life of mortgage. Overpaying like crazy, nothing lasts forever.
    • LONDON_SMOGGY
    • By LONDON_SMOGGY 2nd Sep 16, 4:01 PM
    • 77 Posts
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    LONDON_SMOGGY
    • #3
    • 2nd Sep 16, 4:01 PM
    • #3
    • 2nd Sep 16, 4:01 PM
    Ok so I just phoned up HSBC to try and change to the 1.48% special 2 year fix, and they say I can't add ERC to my mortgage! Is this normal? The MSE guide says you can.

    After another payment my situation is now:

    Debt: 306,762.79
    Months left of fix:11
    ERC: 2510

    Assuming I can't afford to pay off the ERC in cash do I have any other options?
    Last edited by LONDON_SMOGGY; 02-09-2016 at 4:04 PM.
    • Thrugelmir
    • By Thrugelmir 2nd Sep 16, 6:30 PM
    • 49,987 Posts
    • 41,634 Thanks
    Thrugelmir
    • #4
    • 2nd Sep 16, 6:30 PM
    • #4
    • 2nd Sep 16, 6:30 PM
    Ok so I just phoned up HSBC to try and change to the 1.48% special 2 year fix, and they say I can't add ERC to my mortgage! Is this normal? The MSE guide says you can.
    Originally posted by LONDON_SMOGGY
    Lenders will set their own terms of trade. The MSE guide is just that, a guide. So not to be relied on.
    A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against a rainy day.
    • LONDON_SMOGGY
    • By LONDON_SMOGGY 2nd Sep 16, 7:36 PM
    • 77 Posts
    • 0 Thanks
    LONDON_SMOGGY
    • #5
    • 2nd Sep 16, 7:36 PM
    • #5
    • 2nd Sep 16, 7:36 PM
    What would others do in this situation, wait until the fix end in 11 months and hope mortgage rates are at 1% by then, or pay 2.5k to leave ad change to 1.5% now?
    • LONDON_SMOGGY
    • By LONDON_SMOGGY 7th Sep 16, 12:16 PM
    • 77 Posts
    • 0 Thanks
    LONDON_SMOGGY
    • #6
    • 7th Sep 16, 12:16 PM
    • #6
    • 7th Sep 16, 12:16 PM
    Im not sure if it is worth waiting for them to drop further and my house value to increase to over the 75% LTV. Also I found out HSBC would not let me add the ERC to the new mortgage
    • Thrugelmir
    • By Thrugelmir 7th Sep 16, 1:48 PM
    • 49,987 Posts
    • 41,634 Thanks
    Thrugelmir
    • #7
    • 7th Sep 16, 1:48 PM
    • #7
    • 7th Sep 16, 1:48 PM
    Im not sure if it is worth waiting for them to drop further
    Originally posted by LONDON_SMOGGY
    Rates over recent years have been influenced by the BOE Funding for Lending Scheme. Some lenders have a residual amount that can be drawn down. Hence the better rates being 2 year fixes. From 2018 this money will start being repaid by the lenders as the scheme winds down. Without alternative schemes the logical conclusion is that this will cause rates to nudge upwards. As market forces will then determine the price of funding for lenders.
    A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against a rainy day.
    • LONDON_SMOGGY
    • By LONDON_SMOGGY 21st Sep 16, 4:55 PM
    • 77 Posts
    • 0 Thanks
    LONDON_SMOGGY
    • #8
    • 21st Sep 16, 4:55 PM
    • #8
    • 21st Sep 16, 4:55 PM
    not sure if it is worth paying the 2k leaving fee ERC to change, given there are likely future movement in the future, would people sit and wait or jump on the 1.44% fix
    • getmore4less
    • By getmore4less 21st Sep 16, 5:43 PM
    • 25,613 Posts
    • 15,489 Thanks
    getmore4less
    • #9
    • 21st Sep 16, 5:43 PM
    • #9
    • 21st Sep 16, 5:43 PM
    Mortgage debt- 307,455

    August 2017 @ 3.29%
    Early repayment fee- 3000
    Current monthly payment- 1542
    or
    August 2018 @ 1.44%
    Setup fee (inc valuation)- 1750
    New monthly payment- 1623

    You have to recover the 3k in 1 year

    paying the same 1623 over 12months
    307455 @ 3.29% 297,940
    310445 @ 1.44% 295,338

    2.5k better off switching

    add the fees
    312195 @ 1.44% 297,103

    Still ahead 800

    you need to do the numbers for the lower debt, ERC and 11months
    • LONDON_SMOGGY
    • By LONDON_SMOGGY 22nd Sep 16, 11:15 AM
    • 77 Posts
    • 0 Thanks
    LONDON_SMOGGY
    Good way of looking at it thanks. So given interest rate could drop even further, not worth all the upheaval to switch for a yearly saving of 800.
    • getmore4less
    • By getmore4less 22nd Sep 16, 11:49 AM
    • 25,613 Posts
    • 15,489 Thanks
    getmore4less
    Good way of looking at it thanks. So given interest rate could drop even further, not worth all the upheaval to switch for a yearly saving of 800.
    Originally posted by LONDON_SMOGGY
    Not quite,
    Your saving over the ERC is higher than 800 and if the ERC has dropped you may be even better off.

    You are just delaying the fees that's why I split them out

    As you could cover all the cost within the year you are trading the chance of a lower rate against being locked in for another year(or back where you are now with a new ERC and set of fees against a new deal with just fees.

    It would be possible to calculate the rate needed to be no worse off after another year.


    Still need to recheck for 11/10 months there is a 500pm difference in capital payments between the two options so the numbers will be different now.

    You have the added complications to the numbers

    You will be using some of your 10k 5% savings to pay the ERC and maybe the fees

    if you stick with the current deal what's your net savings rate?

    if you go with the new rate your saving will be better so longer term and save rather than overpay will be better.

    if you really believe the rates will go down what's the best tracker on offer?
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