Remortgate to benefit from rate cuts

maccee

Hi,

We purchased a terraced house in Sep 2007 for 198000 and took out an offset mortgage with Coventry at 5.99% for 150000. The mortgage is fixed for 5 years and there is an ERC of 4%.

As of Jan 2009, we have managed to reduce the mortgage balance to 115000 by making extra payments. Looking at what has happened with interest rates in the last 6 months and further future drops - we are now thinking of remortgaging at a fixed rate of around 3-3.5% for the next 2 years. This means we will have to pay 4% to Coventry to get out of our current mortgage.

With the mortgage balance roughly around 55-60% of the property value (with recent property price falls) - we should be able to get a good fixed rate mortgage.

Is this is a good idea?

thank you

feisty1

u will find plenty of threads on here re the same topic

daveb975

I don't think the numbers add up, unfortunately.

At 5.99% your interest-only payment is £575 per month. At 3.5%, it would be £335.

This means that your saving over 2 years would be £5,760. The 4% that you would pay to Coventry would be £4,600, so you would make only a £1k profit before fees involved in changing your mortgage.

If you move to a 5 year fixed rate, this would take your savings to over £14k, which is more than the Coventry fee, but this may be eaten up by the application/valuation fees from your new lender.

To be honest, with an ERC of 4%, I would only move if my current rate was really bad, and the fixed rates were really good. Moving for a 2.5% differential is not really worth it in this case imo.