Remortgaging - more equity to add but high ERC

Flib

I am on a three year fixed interest-only at 5.99% with UCB (was part of Nationwide, now bought out, I've just found out!) It expires on 30 September 2010. The remaining balance is £199,515.98 (I had a £35k deposit), purchase price £234k in Sep 07. The early replayment penalty is £9965.98. This applies if I transfer before the expiry date of 30/09/2010 or make an overpayment of more than £500 per calendar month.

I may receive a lump sum which ideally I'd use to pay off some of the mortgage (about half of the remaining balance) though I don't particularly want to lose 10% of that as early repayment charges. I was self-employed when I got the mortgage and now I'm PAYE. I've been offered a mortgage as follows:

If your property were to be valued at £200,000 and you were to reduce your loan from £199,516 by £73,000 to £126,516 we could get a fixed deal of 3.99% for two years
The payments would be £701 per month on a repayment basis over a term of 23 years

I'd like to move to repayment (with the remainder of the lump sum in an ISA) but wonder if it's worth absorbing the ERC... any thoughts, folks?

Hillfly

My thoughts are no it's not worth it for a 2 year fixed deal. The costs outweighs the savings.