Increasing mortgage but saving overall, am I right...

ahappychappie

Hi,

Apologies for the lengthy post but I just want to make sure I provide all details...

We moved in Oct-08, our existing balance was £59k, 5 year fixed rate rate 5.98%, we had to increase the term to 30 years. A further amount was borrowed, £47k, 10 year fixed rate 6.19%, 30 year term. Current monthly payments are £644.

Yorkshire BS are currently doing a 4.69% fixed rate. Current mortgage balance is £58k + £46k respectively, total early repayment fees are £4.5k, thus a total of £109.5k (slight rounding difference).

However, based on 23 years payment, monthly fees are £648 - so the same as what we're paying now but we save 7 years less 17 months (paid Oct-08 - current). Thus 5 years 7 months. Based on current payments of £644 that's a massive saving of £43.000.

I'm certain my working are right but just wanted to make sure I'd not missed anything obvious? Yorkshire BS Fees are £499, so makes very little odds.

Obviously I've based savings on current payments rather than when they revery to SVR, but as it's impossible to tell what SVR will be when the terms end I think it's a fair comparison.

The only risk I see is I lose the safety of the 10 year fix, but as it's at 6.19% I guess it's risk vs current savings made...

Thanks in advance.

getmore4less

Can you be more precise on the current deal(s)

Is it currently 2 deals or 1?

Amount, current rate, when that finishes, follow on rate, full term. penalties.

Same details of the new option.

Whats the estimated value of the house?

HappyMJ

Your calculations are flawed. It will cost you more to take this deal now as opposed to waiting until your fixed rate is finished. The early repayment penalty outweighs the savings you will make in interest.

ahappychappie

OK,

Mortgage 1: £58,580
Fixed rate: 50 months @ 5.98%
Full term: 30 years
Current balance: £58,290
Redemption Fee: £1,839

Mortgage 2: £47,150
Fixed rate: 120 months @ 6.19%
Full term: 30 years
Current balance: £46,275
Redemption Fee: £2,777

Thus if we're to take a new mortgage, required is:
£58,290 + £1,839 + £46,275 + £2,777 + £300 (Fee) = £109,481.
On 23 years (5 years fixed @ 4.69%) this equates to initial payments of £648.


Currently I pay £644 - BUT under the new deal I will be paying for much less: 23 years as opposed to 30 years less 17 months paid to date (28 years 7 months) thus I'll be paying 5 years 7 months less = £644 x 67 months not paid = £43,148.

As above, th slight flaw is when payments revert to SVR, but as SVR could be much higher when deals end it's a fair comparions using currrent payments I beleive.

I therefore don't understand the above comments that my calculations are flawed, can you explain further please...

Thrugelmir

Understand your calcs.

The downside is that to exit your current deal you are in fact increasing your total debt by borrowing the product fees. When the remortgage 5 year fix ends, if rates have risen signficantly then you're have higher repayments to contend with. Or will need to increase the mortgage term to compensate.

If you can overpay your current mortgages(s) however small the amount. This will make a considerable impact on the overall mortgage term. Potentially improving the LTV quicker as well. Ultimately a better LTV will allow you access to a much better rate of interest. I assume from your current rates of interest your LTV is high.

Its worth taking a long term view.

getmore4less

I would look at the 5 year point that is a reasonable comparison point since the 1st part of the old loan and the new loan come out of the promotional periods.

£58580 @ 5.98% 30 years is £351pm
After 5y there will be £54,460.36 outstanding

£47150 @ 6.19% 30 years is £289pm
After 5y there will be £43,939.96 outstanding

Total outstanding @ 5years is £98,400.32 on a payment of £640pm


£109,481 @ 4.69% paying £640pm
After 5y there will be £95,169.63 outstanding

At the 5 year point you are ahead so it is worth doing.

At the 4year 2month point(when your 1st bit comes out of the fix the numbers are.

1. £55,235.03
2. £44,546.06
= £99,781.09
3. £97,793.35


What are the follow on rates on the old and new deals.

getmore4less

HappyMJ wrote: »

Your calculations are flawed. It will cost you more to take this deal now as opposed to waiting until your fixed rate is finished. The early repayment penalty outweighs the savings you will make in interest.

Please show your workings I make it the other way round.

Thrugelmir

getmore4less wrote: »

I would look at the 5 year point that is a reasonable comparison point since the 1st part of the old loan and the new loan come out of the promotional periods.

£58580 @ 5.98% 30 years is £351pm
After 5y there will be £54,460.36 outstanding

£47150 @ 6.19% 30 years is £289pm
After 5y there will be £43,939.96 outstanding

Total outstanding @ 5years is £98,400.32 on a payment of £640pm


£109,481 @ 4.69% paying £640pm
After 5y there will be £95,169.63 outstanding

At the 5 year point you are ahead so it is worth doing.

You've based your calcs on the original mortgage advances not the current balances outstanding. So its not a like for like comparison of what the actual balances will be in a further 5 years time.

ahappychappie

LTV isn't too high: Mortgage £109,500, value £175k - £185k.

Mortgage 1: Reverts to SVR: At the time this was 6.49%. Nationwide SVR is currently 3.99% for existing borrowes.
Mortgage 2: As above.

The TBS mortgage reverts to SVR: Currently 4.99%.

Note, 17 months have been paid on the original fixed year deals (Mortgage 1: oringally 50 months . Mortgage 2: originally 120 months).

In summary, I'm increasing the mortgage by £4.5k but reducing terms by 5 years 7 months, I thought the latter greatly outweighed the former but now I'm a little unsure...

Thrugelmir

On these figures. Perhaps you should widen your horizons.

As an example you could get a life time tracker repayment mortgage with HSBC at 2.49% over base on a 25 year term for £493 per month.

At current BOE base rates you could afford to overpay by £150 per month, maintaining your outgoing at the same level.

getmore4less

Fix the numbers, in red,

getmore4less wrote: »

I would look at the 5 year point that is a reasonable comparison point since the 1st part of the old loan and the new loan come out of the promotional periods.

£58290 @ 5.98% 30 years is £351pm
After 5y there will be £54,069.58 outstanding

£46275 @ 6.19% 30 years is £289pm
After 5y there will be £42,748.51 outstanding

Total outstanding @ 5years is £96,818.09 on a payment of £640pm


£109,481 @ 4.69% paying £640pm
After 5y there will be £95,169.63 outstanding

At the 5 year point you are ahead so it is worth doing.

At the 4year 2month point(when your 1st bit comes out of the fix the numbers are.

1. £54,863.20
2. £43,414.36
= £98,277.56
3. £97,793.35


What are the follow on rates on the old and new deals.

With 17months of the 50month
So in 33months when the first penalty would be waived the numbers are

1. £56,125.03
2. £44,470.58
= £100,595.61
3. £102,025.39