Switching Mortgage Deals - worthwhile even with penealties?

Can123

As a mortgage newby, I panicked last year and took out a fixed interest only mortgage at 5.53% interest (on £165,000), to then see interest rates drop substantially. My current deal has 22 months left to run, and the penalty for leaving this loan at this time would be £3079.
However, I have just found out that I would qualify for a 2 year discounted variable rate of 1.99% (set at 1.95% under current variable rate) at the same bank, with a set up fee of £1199.
My sums tell me this would be a substantial saving over the next 22 months, even with the penalty and fee, but am worried about the variable rate... (worried that my luck would now see it spiral upwards!)... Any words of wisdom or advice from those older and wiser?

Mrs_Bumble

Discounted off the lenders Standard Variable rate? That doesn't have any relationship with the bank base rate and that the lender can decide to increase at will?

See if the lender will provide details of what the Standard Variable rate has been over the last 5 years.

I doubt very, very much that the saving that could possibly be made over the next 2 years would make paying fees of £4278 worthwhile?

What was the principle reason for taking a fixed rate last year? Was it the security of knowing what the monthly payment would be because the household budget needs that stability?

There is a spreadsheet somewhere on the forum that has been produced by I think it is locoblade, search through because it is very clever and lets you compare costs etc.

adamshaw

According to the moment your repayments ae about 1016 on a 25yr mtg at 5.53%

Therefore if you were paying 1.99% they would be 698pm saving of £318.00per mth. x 12 = £3816per year and over two years roughly £7632

So yes in principle you would be far better off! However this is based on the current interest rates at 0.5% - will they remain this way for the next two years? who knows mate! You pays your money and take your chance.

But in essence you would be 7632 - 4200 penalties = 3000 better off over a two year period.

HTH

Gorgeous_George

You are right, it would be cheaper.

Ignoring the two months difference between your current fixed rate and the 2 year deal...

On interest only you will pay £480 per month less. That £10,552 over two years far outstripping the costs of switching. Remember, there will probably be valuation fees and legal costs as well as the product cost.

You could switch to repayment and pay £717 (comapred to approximately £760 on your current interest only deal). After the two years that are discounted, you should owe approximately £158,600.

As pointed out by Mrs B, you would be trading a fixed rate for a variable rate.

GG

Mrs_Bumble

Locoblade's spreadsheet

http://forums.moneysavingexpert.com/showthread.html?t=1157173

getmore4less

adamshaw wrote: »

According to the moment your repayments ae about 1016 on a 25yr mtg at 5.53%

Therefore if you were paying 1.99% they would be 698pm saving of £318.00per mth. x 12 = £3816per year and over two years roughly £7632

So yes in principle you would be far better off! However this is based on the current interest rates at 0.5% - will they remain this way for the next two years? who knows mate! You pays your money and take your chance.

But in essence you would be 7632 - 4200 penalties = 3000 better off over a two year period.

HTH

To do like for like you need to add the fees to the mortgage and carry on paying at the higher rate.

adamshaw

forgot about that. thank you. you are correct