Thank you piglet for your comments. You are the first person to give any evidence of any haggling potential.
However, I fear you have miscalculated the cost/benefit ratio in that you are measuring the cost of the ERC over the term of the mortgage. You should not do this. You should measure the cost of the ERC over the term of the deal.
e.g. if the ERC is say £5000, will the revised deal save you more than £5,000 (not just in interest rate but also fees) over the term of the deal. A 2 year fix would mean can you recover the cost of the ERC in that 2 year period.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
dunstonh- Can you explain why I should calculate over the term of the deal rather than the lifetime of the mortgage?
I believe (if I've done my sums right) that I will save more than the ERC over the next 2 years.
Not only that, but, because the deal allows me to overpay up to 10% of the outstanding balance each year, or to change the term of the mortgage, I can keep the repayments what they were before the rate change, saving more.
Sealed Pot Challenge #1607 Virtual Sealed Pot #143
dunstonh- Can you explain why I should calculate over the term of the deal rather than the lifetime of the mortgage?
When your current deal ends you will either buy a new deal or go onto the SVR or tracker. You wont have to pay an ERC at that point. To exit early, you have to pay the ERC. So, you have to make sure that the ERC can be recovered within that period otherwise you end up paying more overall. You have to look at it within each deal period.
So, lets say your ERC was £2000 and you only had 18 months left. Are you going to recover that £2000 in the remaining 18 months? i.e. is the new monthly payment £111 lower than the old one?
You can then extend the difference over the whole term of the deal and make a few assumptions (you dont know what the variable rate will do so you can make a guestimate).
Once your new deal expires, you will go onto the SVR or tracker or buy a new deal. The same position you would have been on your previous deal. This is why you have to look at the costs involved over the period of the current deal and the period of the new deal and not the mortgage.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
Brilliant, thanks- that makes everything really clear.
There are 26 months left on the deals on both my original mortgage, and the new one. ERC was about £3k, repayments have been reduced by about £150 per month (exact figures are at home, I'm at work).
Looking at it on that basis alone, then yes, I make my money back within the length of the deal.
Add to that the ability to continue to use that £150 for the mortgage, and things look even better.
Sealed Pot Challenge #1607 Virtual Sealed Pot #143
Do you think this will work with Halifax, currently locked in at 6.09%
Hi
I know how you feel we are locked in at 6.22% (fixed rate) with Halifax till August 2011! I want to get out but they have told me its £2150 to leave as the redemption charge!
Ive worked out over 3 years we will only have paid maybe £1500 off the mortage if we are lucky (thats replayment one as well) we are over 40 years which I really regret now - this 6.22% was the cheapest at the time 1 1/2 years ago though according to our broker. Mortgage was for £107,500 and house currently valued at £130,000 approx according to local estate agent.
I am consdiering it though but dont know if it will pay us in the long run?
I saw this topic mentioned in the weekly e-mail some time ago, and it's played on my mind ever since.
Well, this evening, I called my mortgage provider, Abbey, to discuss what options were open to me.
I remortgaged to Abbey last September on a 3 year fix at 5.99%, with a 3% early repayment charge.
They've just let me remortgage again to a 2 year fix at 3.99%
I have had to pay the ERC, but, if I stayed with them, they offered to reduce the ERC by 20%.
Over the remaining life of the mortgage (another 21 years), I save money- roughly £4k- even with the ERC. Plus, I've cut my monthly mortgage payment by £140 a month. Well, actually, I'm keeping it roughly the same, reducing the term to just over 19 years, and saving even more.
Remortgaging may not work out best for everyone, but it's looking pretty good for me!
Hi, Great to hear some good news - good on you! LOL
I calculate that your mortgage is £125K and that it must have been a 30 year mortgage. My calculations show it as 29 years but that would be strange so I'll put the difference down to the 'approximate' figures that you provide or that the term was restarted when you remortgaged.
Based on that you will save £900 over the 26 months. This begs the question 'Why would Abbey offer you the deal?'. Did the mortgage term stay the same i.e., have the same end date as the original mortgage? Finally, was the £3k added to the mortgage?
GG
There are 10 types of people in this world. Those who understand binary and those that don't.
Replies
However, I fear you have miscalculated the cost/benefit ratio in that you are measuring the cost of the ERC over the term of the mortgage. You should not do this. You should measure the cost of the ERC over the term of the deal.
e.g. if the ERC is say £5000, will the revised deal save you more than £5,000 (not just in interest rate but also fees) over the term of the deal. A 2 year fix would mean can you recover the cost of the ERC in that 2 year period.
I believe (if I've done my sums right) that I will save more than the ERC over the next 2 years.
Not only that, but, because the deal allows me to overpay up to 10% of the outstanding balance each year, or to change the term of the mortgage, I can keep the repayments what they were before the rate change, saving more.
Virtual Sealed Pot #143
When your current deal ends you will either buy a new deal or go onto the SVR or tracker. You wont have to pay an ERC at that point. To exit early, you have to pay the ERC. So, you have to make sure that the ERC can be recovered within that period otherwise you end up paying more overall. You have to look at it within each deal period.
So, lets say your ERC was £2000 and you only had 18 months left. Are you going to recover that £2000 in the remaining 18 months? i.e. is the new monthly payment £111 lower than the old one?
You can then extend the difference over the whole term of the deal and make a few assumptions (you dont know what the variable rate will do so you can make a guestimate).
Once your new deal expires, you will go onto the SVR or tracker or buy a new deal. The same position you would have been on your previous deal. This is why you have to look at the costs involved over the period of the current deal and the period of the new deal and not the mortgage.
There are 26 months left on the deals on both my original mortgage, and the new one. ERC was about £3k, repayments have been reduced by about £150 per month (exact figures are at home, I'm at work).
Looking at it on that basis alone, then yes, I make my money back within the length of the deal.
Add to that the ability to continue to use that £150 for the mortgage, and things look even better.
Virtual Sealed Pot #143
Hi
I know how you feel we are locked in at 6.22% (fixed rate) with Halifax till August 2011! I want to get out but they have told me its £2150 to leave as the redemption charge!
Ive worked out over 3 years we will only have paid maybe £1500 off the mortage if we are lucky (thats replayment one as well) we are over 40 years which I really regret now - this 6.22% was the cheapest at the time 1 1/2 years ago though according to our broker. Mortgage was for £107,500 and house currently valued at £130,000 approx according to local estate agent.
I am consdiering it though but dont know if it will pay us in the long run?
James
Hi, Great to hear some good news - good on you! LOL
James
I calculate that your mortgage is £125K and that it must have been a 30 year mortgage. My calculations show it as 29 years but that would be strange so I'll put the difference down to the 'approximate' figures that you provide or that the term was restarted when you remortgaged.
Based on that you will save £900 over the 26 months. This begs the question 'Why would Abbey offer you the deal?'. Did the mortgage term stay the same i.e., have the same end date as the original mortgage? Finally, was the £3k added to the mortgage?
GG