Am I ripping myself off?

diesel_dog

I've got my house sold for £219k. I have an interest only mortgage at 6% that will end in May 2012 and I owe £95k with £485 as each monthly repayment. I also have an ERC of £4300.

Now the way I see it is, that if is see out the end of my current mortgage term, I'll end up paying 19 x £485 which equals £9215. None of that will be paying off my £95k. So paying the £4300 seems a cheaper way out? Would prefer not to pay the ERC, but that will teach me for not reading the paperwork properly.

I'm looking at buying a place with my other half when her place sells. Between us, we'll be looking to get a house for approx £230k, with a £180k deposit (£90k each) which we'll then want to borrow say £50k. £50k over 10 years will see us at 4% at £513 as a repayment

I've been advised to pay off 10% off the £95k I owe on mine, port my mortgage to the new property, add my other half to the ported mortgage (£200 fees?!?). So at 6% for £85,500 then making the monthly repayments £621 on a 20 year term. It works out £968 for 10 years.

Am I living in my own bubble as I see paying the ERC as the better option instead of porting it to a new property and having my other half subsidising my mistake of paying £6%.

Your opinions are welcome as I don't think the advise given was up to much ....

TrickyDicky101

I am biased as I dislike being in debt for any more than I need to be, but I agree with you - especially if you can take a fixed rate deal on the new borrowing at a competitive rate. Unless you are desperate to have available funds to improve the new house/spend on anything else I can't see the need to take out a bigger mortgage and leave both you & partner with more free cash to do what with? Invest in cash-like instruments at !!!!!! all interest rate or take a risk on the capital in an equity product (in which case you want to invest long term and not be dipping into it in the next 5 years).

I say pay the ERC and minimise your mortgage.

ViolaLass

Surely the question is whether paying 4% instead of 6% between now and May 2012 will save you more than the ERC.

£50k borrowed at 4% is £2000 a year interest only, at 6% it is £3000/year. Therefore, by paying the ERC, you would save £1000 a year which, in my book, doesn't make the ERC worth it as you would spend £4300 to gain £1800-ish.

Whether in the long term it would be worth locking into a new fixed rate now given that rates will rise at some point is up to you. It might save you money in the long term but you can't know that. In the short term, the sums don't add up.