Shall i ditch my fix?!

every_penny_counts_2

I am new here and after a bit of advice/opinions....
We have a 4.99 fixed rate that finishes in June 2011. The current redemption penalty is around £1400, and for a while i have been considering whether to ditch it and go for a tracker or discounted rate elsewhere. I've seen a couple that would give us rates between 1.98-2.99 for the next 2 years with varying fees (or none at all in one case). Our LTV is below 50%.
What we are thinking is if we can save a fair bit it will help us try and throw some money at our unsecured debt which is around £14,000:eek:.
I know our current rate isn't bad and everything depends on how rates move in the next couple of years! I'm so unsure what to do and would really appreciate any advice!

Matty0682

Hi,

What is your outstanding mortgage?.....need this to calculate comparison

4.99 is but no means a bad fixed rate, so I’m guessing the additional fees may off-set any saving. Although I will have a look at the one you say there are no fees

every_penny_counts_2

We have 82,000 outstanding. The one with no fees was with HSBC (i think). It was a 2 yr discount with no arrangement or legal fees. The others were with Co-op, Woolwich and Abbey. Thank you!

dimbo61

Hi EPC !
HSBC can and are very careful over who they give mortgages to at the moment !
The 2.99% discount is only upto 75% LTV which you are under even with the extra money to pay the ERC and other fees ? and clear the £14,000 of unsecured debt.
Now if your existing mortgage was over 25 years and you have paid 1 year your monthly payment should be about £489 a month ?
If you borrowed £98,000 off HSBC ( £82,000 mortgage, £14000 debt and £2000 ERC plus fees/legals) your new mortgage payment would be £477 a month.
I would only do this if you " CAN LIVE WITH IN YOUR MEANS " and destroy the credit cards.
You would be at least £500 a month better off ( no credit card bills!)
But you must then overpay the mortgage by £400/500 a month to pay back the extra borrowed ASAP because rates are not going to stay low for years to come.
Use Martin,s website to save money and start to overpay the mortgage as this will be your only debt I Hope. GOOD LUCK

Matty0682

Your fixed rate ends on June 2011, So I’m guessing this is also your tie-in period. After this date there is no ERC

You have 19 months remaining @ 4.99%. The interest payment on this rate is £341 PCM or £6,479 to June 2011. So if the interest portion of the new mortage (plus ERC & set-up fees) is less than this, you may look at changing mortgage.

Rather than looking at specific mortgages for you, I've listed two possible rates you can achieve (according to yr post above) and examined the interest cost over the 19 month comparison:

1.98% = £135 PCM or £2,570 for 19 Months. Saving = £6,479 - £2,570 - £1,400(ERC) = £2,509
2.99% = £204 PCM or £3,882 for 19 Months. Saving = £6,479 - £3,882 - £1,400(ERC) = £1,197


Points to note, some Trackers jump to a higher rate within your tie-in period and are linked directly to BOE rate. Discounted mortages are linked to lenders standard variable rate.

Therefore if:
new mortgage set-up fee + valuation fee + land registry fee
is less than the savings above, for that given rate, you will save money. However this is obviously asumming the BOE rate will remain the same. I believe they will increase rates slightly next year, so I would factor that in also.

every_penny_counts_2

Thank you so much Dimbo and Matty! You are so helpful:T
We only have 14 years left on mortgage and took out on a 17 year term. We went for lower term to try and reduce what we paid overall, so consequently have a higher payment of £689 per month. This was probably - in hindsight -pushing it a bit, which has resulted in the credit cards climbing.:o

I'm reluctant to take out extra on the mortgage to clear the debts as it would make them secured, and in the long run make the mortgage last longer as if rates shoot up we will have to extend the term to make the payments affordable. I thought if we could save by lowering our monthly mortgage payment alone-which it looks like we can based on Matty's calculations-it would allow us to be more effective in reducing the CC debt.

It's just such a gamble isn't it! I liked the fixed for the security, but am thinking if by the time its finishes rates have reached what we are paying now we'd have missed out on 20 months or so of saving money that we could use elsewhere.