Remortgaging - no penalty fees, saved £5000

dermotological

Hi - not quite mortgage free, but I have managed to remortgage, and save £100 per month for the next 5 years. :money:

With the LIBOR rate so high at the moment, the Early Repayment Charge rate is very high. At NatWest, for mortgages having 3 years or more left to run, their ERC rate is 6.94%. If this is higher than your fixed rate, you can redeem the mortgage without charge. I have reduced my fixed rate by over 1% - I was fortunate in that I had exactly 5 years left on my original fixed rate mortgage, and found another 5 year fixed deal.

By staying with NatWest, I have not had to pay any legal fees or re-survey the value of the house. I have had to pay an acceptance fee, which I paid up front, but which could have gone onto the balance.

If your lender's ERC rate is higher than your current fixed rate, and your lender offers a remortgage rate at less than your current fixed rate, then you should be able to do this as well.

LIBOR rates are falling as a result of the 1.5% interest rate drop, so time may not be with you. I did this over the phone, and with giving a verbal acceptance, it can all be done in a couple of days.

Good luck!

Dermot O'Logical

Jonbvn

LIBOR just fell off a cliff to 3.21%. However, I really don't understand what you are talking about.

AFAIK, ERC's have no connection to LIBOR. When I was on a fixed rate with HSBC the ERC's was a % times the period of the fixed rate remaining. I recall it was about 4% at the start of a 2-year fix.

dermotological

For early repayment penalty value, NatWest uses a calculation described here:

http://www.prnewswire.co.uk/cgi/news/release?id=56598

The primary factor, dictating how much early repayment charge will be, is what NatWest terms it's Early Repayment Charge rate. This rate is published here:

http://www.natwest.com/personal/mortgages/g4/common-questions.ashx#what_is_the_early_repayment_charge_for_my_mortgage

The value of this charge rate is calculated by NatWest and it reflects their projection of interest rates over the given period. The values are currently the highest they have been for about 9 years, and reflect the cost to the bank of holding the debt. Given that rates are dropping, and rates between banks (LIBOR) are dropping, then the cost of that debt is also falling, so the ERC rate will also come down.

The bottom line is - thinking that changing a fixed rate deal will cause a repayment penalty is not necessarily the case right now.

Dermot

Lunar_Eclipse

I have only experienced ERC's with a fixed rate mortgage. But they have always been a fixed percentage of the original loan payable upon an early repayment of the mortgage as per the terms set out in the mortgage offer/contract. I am currently on a fixed rate mortgage ending this month. My T &C's state that I owe 1% of the original amount borrowed if I exit the mortgage before this timeframe. (It was 2% if I quit during the first year fyi.)

If I understand you correctly, you are suggesting that your ERC was variable? And thus changed as the cost of the debt (your mortgage) changed. Never heard of that before.
So whilst I understand the logic behind what you are saying, is yours a different set-up to mine?

Jonbvn

OK, so it seems like this ERC calculation is something peculiar to Natwest.

JimmyTheWig

So what fixed rate were you on that meant it was better to get a new deal now?
You'd have to fight me to get us to give up our current fixed rate deal!

dermotological

Yes - if you're on a fixed percentage ERC, this won't work for you - sorry!

My ERC varied with changes in the market, so with all the turmoil, I kept an eye on the ERC-rate. Once it got above my rate, I took what advantage I could.

The new deal is as has been described by others, namely an ERC of 5% in year 1, 4% year 2, ... 1% year 5, but I now have a penalty-free overpayment facility up to 10% of the loan each year. All told, I'm in a significantly better position than last week.

JimmyTheWig

It sounds a bizarre deal that you were on - the higher the ERC, presumably, the higher the fee you would have to pay if you redeem your mortgage... until the ERC got to a certain point at which time it was free?
Bizarre.

Are you now on a significantly lower LTV than you were when you first took out your mortgage? Is that why you have been able to get a better deal?

dermotological

The ERC reflects the cost of the debt to the bank, so the higher the ERC, the less the loan was worth, and so the repayment charge goes down.

You are right in that I do now have a few years equity in the house, but the deal required 'only' 25% deposit. I'd guess anyone buying more than 3 or 4 years ago should be in that situation.

JimmyTheWig

So this ERC isn't a charge at all? More like something used to calculate the charge.