Is it worth paying an ERC?

kec09

Tied into a 5 year fixed of 6.29% that started Sep 08 so we are just over half way, the ERC would now be £6k.
we purchased the property at rock bottom price with only a small deposit as we spent some money doing the place up, we started with 89% LTV, going by what next door have just sold for and what the estate agents valued the house at we now have at most 72% LTV.
We have 197k on the mortgage and pay £1250 per month, so is it worth paying that charge to get a better deal?
The money we save would pay off the cc then go as over payments on the mortgage.

dunstonh

so is it worth paying that charge to get a better deal?

What would be the cost of the "better" deal?
How would that compare to staying put?

We cant say without figures.

kec09

dunstonh wrote: »

What would be the cost of the "better" deal?
How would that compare to staying put?

We cant say without figures.

Looking at some price comparison sites, if we got 3.59% fixed for 3 years with a 1k fee, we could save £9600 less 7k fees so we would really save only £2600.

I think I should speak to some lenders first and see which deals we will be eligible for.

uzubairu

We were on a 10 year fixed rate mortgage with Nationwide, which we took out in 2006 when we moved house.
We wanted the safety of a fix (4.79%) as the new mortgage was triple the previous one.
A few years later with the help of MSE website and payrises, we found that our outgoings were less and we has more money left over.

Limited to £500 per month on overpayments and paying £300 per month in interest, last August (2010) we decided to pay the £1920 ERC and take a tracker mortgage with First Direct (BR + 1.79%).
The £99 product fee was the clincher. Previous to that, most good deals we'd seen had high product fees (£500 - £1.5K).
Straight away the interest payments dropped to £135, and the overpayment money is now paid into several Regular Savings accounts paying between 4% and 8%.

By September (2011) we will have recouped the ERC with the lowered interest payments, and even if rates rise very soon, it may take an extra month or two.
We'd always thought that paying the ERC was taboo, but when we did the sums, we realised that it was worth a punt and so far it is working out for us.

£2,600 is a decent saving, especially if you have another use for the money.
The best deals are usually reserved for LTVs of 60%, so fixing for 3 years and overpaying may get you to that point.

Thrugelmir

kec09 wrote: »

The money we save would pay off the cc then go as over payments on the mortgage.

The amount of unsecured debt you have will impact on your mortgage application and the amount that a lender is willing to advance.

Thrugelmir

kec09 wrote: »

Looking at some price comparison sites, if we got 3.59% fixed for 3 years with a 1k fee, we could save £9600 less 7k fees so we would really save only £2600.

How do you propose funding the £7k of fees. Adding them to the mortgage?