Remortgaging before term is over

db9429

Hi everyone, first post!

Basically, I was wondering if anyone had cancelled their current mortgage and moved to another package (or bank altogether) after the interest rate cuts, and whether it was worth it or not.

I'm currently with Nationwide on a 3 year fixed term (from May 2008) at around 5.85% - Nationwide have dropped the rate of that package by 1% and so I was wondering whether it would be worth taking the hit on the redemption penalty and remortgaging at the lower rate, or scouting around for an even better deal from another bank.

Probably more hassle than it's worth, but any advice would be much appreciated

_Andy_

Hi

This has been discussed at length in many other threads, if you have a look through the recent pages on this forum you'll find responses to people in the same situation.

foreversummer

You really need to work out what your redemption penalty is and how much you will save with another mortgage. Remember to factor in all fees for the new mortgage.

Bear in mind that interest rates will not stay low forever.

Foreversummer

JayZed

I believe that Nationwide's early redemption penalty is 3% of the outstanding balance. You have 2.25 years remaining on your current fixed term.

That means you'd need to be on a rate that's 3 / 2.25 = 1.33% lower than your existing rate just to break even... and that's before you factor in any arrangement/valuation fees you have to pay for the new mortgage.

The difference that the fees make depends on the size of your mortgage. Let's assume that your outstanding balance is £100,000 and the total fees are £1,000 (which is 1% of the outstanding balance). Over 2.25 years this is equivalent to an additional 1 / 2.25 = 0.44% on your interest rate. That means that you need an interest rate of at least 1.33 + 0.44 = 1.77% lower than your existing rate to make it worthwhile, i.e. a fixed rate of 4.08%

If you wait until May (when there are two years left on your existing term), then that sum becomes 1.5 + 0.5 = 2% lower than your existing rate, i.e. a fixed rate of 3.85%.

I very much doubt that you can find fixed rates that low, so (assuming that your redemption penalty is indeed 3%) it's almost certainly not worth switching.

db9429

Jay - Many thanks, that was the sort of calculation I was looking for and it makes perfect sense.

Thank you Andy and ForeverSummer too.