Ditch my Fix or Reduce Term of Mortgage?

rachelandgromit

Could really do with some advice. I'm on a 10 year fix with Principality Building Society @ 5.99 until 30th June 2018 (monthly fee £591.40). Now to ditch this mortgage my I have to pay a whopping 8% fee, plus £157 redemption. I was thinking, would it pay to ditch this fix as the calcuator seems to suggest this may be viable but as with anything, I know it depends on individual circumstances? Working out my LTV it is 55% valuing my property at 150k which is on the low side given the price of others in the area.

The alternative is to reduce my term of my mortgage (I am in a significant better position at work than I was when I took out the mortgage). I can reduce the term to 11 years 11 months (monthly repayments £818.05) which means that when my fix is up in 2018 I won't have that much left to pay and (hopefully) could be in a position where I can look at paying off my mortgage depending on my financial position. Oh, and my 10 year fix has a clause in it to say I can't overpay, but I can reduce the term! I never saw it as a problem at the time as I never thought I'd want to overpay.... :mad:

Any help welcome.

Rachel

rachelandgromit

Anyone offer any suggestions??

jimjames

The Nationwide have a good calculator on their site to work out the payment amounts for different mortgages and rates.

If you plug the figures into that to work out what you would pay with several different options then it will give some idea. Very hard to be definitive as no-one knows what rates will do between now and 2018 but I think its unlikely that rates will go above 5% in the next 5 years. As such you may find paying off current mortgage faster is the most cost effective route.

These kind of exit fees are one reason why I've always avoided fixed rates and would always suggest looking at discount/variables instead.

rachelandgromit

I know but to be honest I needed the stability of a fix, at the time I took the fixed rate people were shouting that rates were going to go over 6%, and I couldn't take the chance. I am in a better position now so could look at perhaps a smaller term fix, or do I just think s*d it and just plough as much into reducing the term as I can and hope by the end of my fix I'm in a position to be mortgage free, it's such a difficult choice....

Thrugelmir

Over a 7 year term. Then your 6% rate may seem reasonable.

I would amend (shorten) the term to a level which is affordable. This at least gives you flexibility. As you will be repaying the capital debt quicker.

AliBongo73

Overpaying and reducing the term have the same result - the only difference is that with overpayments you can decide when, whereas with reducing the term you are committed to the higher payments. It is funny how newer 'flexible' mortgages allow you to overpay (eg offset) and yet you can do similar with older style mortgages by changing the term, and they often offer lower rates than newer style products. I would ask if there is a fee to change the term and whether you can change it back again (eg if your financial situation was suddenly not so good), just in case. They will probably have in mind a minimum term based on affordability for you. Then use calculators to work out which saves you more money - reducing the term, or paying the fee for an early exit from this deal. There are certainly much lower fixes around at present, so I guess you would need to look at what feels a good compromise between term and the rate and factor this into your calculations.

rachelandgromit

There is a fee of £40 to change the term, then if I want to change it back again, it is £40 again as long as I'm not increasing it more than what the initial term was to start with. Significantly lower than the 8% fee of the initial advance, (which is £7,080 and the redemption fee of £157). I've just confirmed these amounts with them :mad::mad:

So annoying.

prudence41

I had the same dilemma and rather than ditch my Nationwide 2013 fixed rate mortgage, I paid the £20 fee and reduced the term. The result is a higher (but manageable) basic repayment and still the ability to overpay each month.

rachelandgromit

Yes, this is what I've done, reduced the term to 11 years which is paying just over an extra £200 per month. My fix is up in 2018, so at the end of my fix, I'll see where I'm up to. Perhaps have enough to pay off my mortgage, we'll see. Would be nice to have no mortgage at 37 yrs old.:D