Remortgaging

pygo4

Hi all

I've been a regular browser of this forum for a while and thought i'd run something past all you experienced money savers.

Basically i'm looking into remortgaging to pay off my current mortgage (with RBS), incurring the ERC and taking a new mortgage at a lower interest rate (i've used figures from the Post Office in this example). I'd have to add the ERC and the arrangement fee to the mortgage but have gone with the POs fees assisted rates to minimise any other costs. With the equity we already have in the house and looking at house sales near me i am confident we should be able to achieve a 75% LTV and any repayment figures are affordable to us. Our mortgage started on 31 Oct 2008 and i have assumed all this happens two years into the mortgage. The figures are as follows:

£113500 mortgage over 25 years at 6.29% paying £751 per month.

ERC before 31 Oct 2010 is 4%
ERC before 31 Oct 2011 is 3%
Balance on mortgage after 2 years is £109506.

If i repay on 1st Nov 2010 ERC would be £3285 (3% of 109506).
Would need to remortgage for £112791 plus add £995 arrangement fee to mortgage totaling £113786.

Mortgage for 113786 over 23 years at 4.35% (5yr fix) gives payments of £653 per month. Or have mortgage for 15 years and pay £862 per month.

Fix for 3 years (3.85%) and the payments would be £622 and £833 respectively.


The way i see it i can either keep my term the same and reduce my payments or reduce the term by 8 years and still afford the payments comfortably. I think realistically we would be looking to move house in about 5 years time and the 5 year fix over 15 years would see us in a good place with regards to the amount of equity we would then have to fund our next house.

Am i missing anything here, is the whole process as straight forward as i am imagining it to be? Arrange a new mortgage to pay off the existing one and away we go?

Any pointers on anything i may have missed would be appreciated.

Thanks

[Deleted User]

So your current mortage (I assume it is a fix) expires in 3 years. What is the current SVR of your lender?

At present, based on your figures, you wouldn't break even on the ERC and arrangment fee until more than 44 months on the new fixed rate. But that's using your current rate as continuing beyond its term.

Difficult to say if you will save much or anything.

pygo4

I think their current svr is 4%, this is the figure they quote all fixed term mortgages reverting to on their website.

By remortgaging and sticking to 23 years left to pay the difference in equity compared to what i'd have by doing nothing is negligible, so like you said it might not even be worth the bother from a long term financial point of view.

It's the reducing the rate and combining that with reducing the term that interests me moreso. From the mortgage calculator it looks like it would cost me roughly 6k in higher repayments to end up (in 5 years) with the balance on the mortgage approx. 13k less.

I'm thinking that it might be better to remortgage in the near future (November) and get a lower rate guarenteed for 3 or 5 years than wait until my current deal expires when interest rates are either going to be the same, or more likely higher, than what they are now.

Regards
pygo

[Deleted User]

All combined, breaking the existing mortgage, fixing for 5 years and then reducing the term to pay as much as you can afford each month would seem sensible in the long run. You're probably right that if you stay, you will come off 6.29% fixed to a SVR of around the same in two years.

But you'll need someone smarter than me to check the maths. And you certainly want to fix for at least 5 years to make the ERC worth it. On a 3 year deal, the £3285 ERC means you're effectively paying an extra £91.25 a month for the next 3 years. Whereas it's only £54.75 a month over 5 years.

pygo4

Thanks for your thoughts on the matter.

I just put the figures into the 'ditch your fix' part of the mortgage calculator and it reckons i need to achieve below 5.14% to save in the long term so it looks like this option to fix for 5 years and reduce term is due some serious consideration.

Regards
pygo

Engeroosi

Could You not consider just overpaying on your current mortgage which would bring down the duration of your mortgage and you wouldn't have to pay ERC then in 3 years when the FR is up you will still be in a good place to move up the property ladder!

Engeroosi

Hi, I am now coming round to the OP way of thinking, I am on the exact same deal at 6.29% for 5 years, and funnily enough I took it out at the same time. I am considering re mortgaging once the erc drops to 2% of outstanding balance as I am hoping to get below 75% LTV.

Any one any thoughts on this? How did the OP get on?

redlady_1

I have just done this very thing. Previous interest rate was 7.29% fixed. New one 4.09%. Redemption penalty £1959. I have reduced the term, added the RP to the new mortgage and saved myself alot of money each month. The deal I have is fixed and I havent had to pay any fees at all apart from the RP. They are out there if you have the LTV. All painless and done in less than two weeks.