Mortgage help wanted - would it be beneficial to extend mortgage term??

BINNS

I am one of the unluck ones who was advised to fix at 6.58% in September!! Regretting it now. We are fixed in for 2 yrs and would have to pay £921 ERC - which is an option. We owe £55,000 and our house is worth £180,000 and we currently have 14 years remaining.

What I want to know and I'm struggling to work out is...

how much will actually come off our mortgage after the 2 years are up if we keep paying £505 per month as we are at 6.58% or should i increase the term to 20 years and pay only £412 per month - how much will come off the mortgage then??? and if i saved the £93 per month I would be beter off in a savings account and payed off at the end of the 2 years is this an option??
Does any one understand what i mean?

Or should I pay the ERC and get out now and accept a lesson learnt - how many years would I have to fix at and what rate to make it pay to get out?

Can't sleep with all these figures in my head!!!

poppy10_2

Don't increase the term, no matter what you do

Joe_Bloggs

The more money you pay off the capital the less interest they should charge. If you are stuck in a bad deal then consider your overpayment opportunities. If you reduce the term you are enabling your lender to charge you more interest, as your capital repayments are less, for a longer period.
There may be alternative ways in which you could make more than 6.58% on your savings after tax to justify not paying into the mortgage. ( In your dreams)
A new mortgage @ 4.58% on £50000 would save approx 1000 a year. if it cost £1000 to get it then it probably was a tie between doing nothing and re-mortgaging given the ERC.
J_B.

shaven-monkey

paying off £505 per month over 2 years at 6.58% per annum works out at a debt remaining of £49,797.41 with interest calculated monthly. total paid £12,120.
I think.
paying off £412 per month over 2 years at 6.58% per annum works out at debt remaining of £52,175.98. total paid £9,888.

debt differential : £2,378.57
saving in payments : £2,232
actual saving : £-146. not including whatever rate you can get on a savings account at £93 per month.

with an HSBC tracker mortgage at 3.99% (using moneysupermarket's overall cost for comparison figure of 4.2% apr) and a fee of £800 and the early redemption cost of £921...
Switch now, pay £505 per month to hsbc and you would have paid off £2607.17 more of the debt after 2 years. saving of £886 over that period when the fees and penalties are paid. Term of the hsbc morgate at that payment rate would be 11 years and 6 months assuming no interest rate changes (which is over optimistic). total paid would be about £70,700 but it's a gamble on the rates staying the same or dropping really.

Of course the tracker mortgage may not perform so nicely over the 2 years and interest rates may rise. If they go above 5% then you'll be out of pocket.

Abbey offer a remortgage product at 4.49 fixed until feb 2011, rising to 5.44 thereafter. Over the 2 years you would still be saving about £380 on your current mortgage after fees and ERC. to pay it off would take 12 years and 3 months@ £505 per month.
total paid : £73,730

Not sure what the early redemption clauses are with either of the above mortgages.

BINNS

Thanks to all - lots of figures to go back and look at - might be some time!!

Would I be right in thinking - stay as we are for now and if a low 5yrs fixed with no arrangement comes onto the market - go for it?

We brought the house for 54,000 and have had 10,000 back for improvements and we have been in the property 9 yrs - why do we still owe £55,000 - have we just always made bad mortgage decisions? - i wish i knew about this site earlier....

InMyDreams

BINNS wrote: »

if i saved the £93 per month I would be beter off in a savings account and payed off at the end of the 2 years is this an option??
Does any one understand what i mean?

Yes, I do. And yes, you would be better off IF the savings rate is higher than your mortgage rate (and that's the savings rate after tax) and IF you aren't tempted to spend any of the money (or interest) you are saving.

But with a mortgage rate of 6.58% I don't think that's a possibility, really.