Should I change my current mortgage?

deeleys

I am with the Abbey and have a mortgage of £188,500 over 30 years at a rate of 5.93%. I currently have 40 months left on the current fixed deal. (I currently have £184,500 left).

The Abbey have offered me a 2 year fix at 4.24% (or a 3 or 4 year deal at 4.69%) although I have to pay a £5,904.37 early repayment charge.

I have used the mortgage calculator and it says to switch but I cant seem to work out the figures.

If I compare my current deal with the 2 year deal from an interest only point of view, monthly payments are £672.80 for the 4.24% and £931.50 for the current 5.93%. This gives me a saving of £6208.80 over the 2 years, which looks worth it due to eclipsing the early repayment charge. Although I will still owe an extra £5,904.37.

When I compare the 2 year deal from a repayment point of view, there is a saving of £4465 over the 2 years. Making it not worth it due to the higher ERC. I would also still owe £5619.33 more than if I would have stayed on the original 5.93% deal for the 2 years.

Could someone please help me understand how it works and what I am doing wrong.

Thanks

somethingcorporate

deeleys wrote: »

I am with the Abbey and have a mortgage of £188,500 over 30 years at a rate of 5.93%. I currently have 40 months left on the current fixed deal. (I currently have £184,500 left).

The Abbey have offered me a 2 year fix at 4.24% (or a 3 or 4 year deal at 4.69%) although I have to pay a £5,904.37 early repayment charge.

I have used the mortgage calculator and it says to switch but I cant seem to work out the figures.

If I compare my current deal with the 2 year deal from an interest only point of view, monthly payments are £672.80 for the 4.24% and £931.50 for the current 5.93%. This gives me a saving of £6208.80 over the 2 years, which looks worth it due to eclipsing the early repayment charge. Although I will still owe an extra £5,904.37.

When I compare the 2 year deal from a repayment point of view, there is a saving of £4465 over the 2 years. Making it not worth it due to the higher ERC. I would also still owe £5619.33 more than if I would have stayed on the original 5.93% deal for the 2 years.

Could someone please help me understand how it works and what I am doing wrong.

Thanks

Interest only I make it:

Staying put:

£184,500 @ 5.93% = £10,941 pa or £21,882 for 24 months or £32,823 for 36 months.

Moving
£184,500 + £5,904 = new mortgage balance of £190,404

£190,404 @ 4.24% = £8,073 pa or £16,146

Over 2 years you would save £5,735 but have a mortgage balance £5,904 higher so I would suggest that this would not be a wise move.

£190,404 @ 4.69% = £8,930 pa or £26,790 over 36 months.

Over 3 years this would save £6,033 but again you would have a considerably higher mortgage balance.

I would say for both of these options moving would be the wrong thing to do, the rate differential would have to be far more substantial to make it worthwhile. I would suggest this is the same for the capital repayment option too.

HTH

beecher2

What is your follow on rate from your existing mortgage, and the offered one?

dimbo61

If you are going to pay the ERC and depending on your LTV I would be looking at a 5 year fix at 3.99% ( coop were offering this deal last week) or stay put and overpay every penny you can afford.

getmore4less

To do like for like you need to set the payements the same and see what is left at the end of the terms.



1. £184500 @ 5.93% 40months repayment over 30y £1098

Penalty to switch £5,904.37

so £190405

options

2. 4.24% 24month £936pm
3. 4.69% 36month £987pm
4. 4.69% 48month £987pm

Set the payment to £1098 on all and see what is left outstanding
option.....24month........36month.........40month.
1.......£179,766.21...£177,180.82... £176,284.48
2.......£179,773.71
3/4....£181,520.14...£176,755.89...£175,117.60

Now the follow on rates may be important if the current deal is a good one paying more now could benift in the future.

The 3/4 year fixes save you money
The 2 year is break even so a way out of the cuurebt fix cycle.

somethingcorporate

getmore4less wrote: »

To do like for like you need to set the payements the same and see what is left at the end of the terms.

Whoops - I missed that very subtle but very important point

deeleys

Thanks everyone for your help. I think I am going to go for the 2 years at 4.24% so that I break even and it will let me get out early. Just hope the rates don't go back up to 5.93% in two years time so will eventually make savings.

The follow on rate for my current and new mortgage is the Abbey current standard rate, which is 4.24%.

I had a look at the co-op's 3.9% but don't think I would have 75% LTV and it is another £1000.