Financially feesible to exit mortgage?

ambition12

Hello,

I was wondering if anyone could help with this one...

I was nieve to sign into a contract 3 years ago which tied me up to a 5 year fixed at 7.25%. Why I signed up to that, to this day I still do not know!

My mortgage balance sits at £106,000 +/- and I am still tied into this mortgage for a further 2 years.

I put down 10% deposit on a £120,000 property.

At present I would have to pay an exit fee of 3%, this drops to 2% after August.

Would it be better for me to continue paying £787 per month or would it be cheaper to pay the exit fees and leave for a lower % mortgage!?

Hope someone can help!

Thanks very much for your time folks!

Lee

Rafter

Lee,

If I'm right in assuming you have 2 years to run in August then the fee works out at 1% a year effectively on the rate.

So as long as the 'new rate' is more than 1% below your 7.25% then you will be better off.... but don't forget to include all the fees and costs associated with the switch.

If you can scrape together £4k by then to get your loan to value down to 85% you could get a new 5 year fix at about 4.4% (co-op bank)

So the 2% fee will cost you £2,100. Exit fee say £200. Fees on new mortgage £1,250. Total cost £3,550.

Interest saving over 24 months c. £5,800 - net saving £2,250.

So.... if you still have two years to run, it is definately worth it. If you only have one year to go, the saving will probably be less than the costs.

The key is to try and see if you can get yourself below 85% for remortgaging time so you can access much more competitive rates.

Good luck

R.

PS - if you are prepared to risk that base rate will stay very low you could get a rate of 3.99% variable with HSBC (fee free)

Sepa74

Oh my, that is a stinker of a mortgage rate. It definitely sounds like it is worth shifting - shafter has the right process for figuring whether it will be worth it or not.

Also bear in mind that the economy is really not very healthy, and that inflation has (finally!) started coming down, so the base rate is unlikely to shift in the near future (these are the things the BoE takes into consideration when determining BoE interest rates).

So for you, the low risk option is a fix for several years - but the rate will be higher.

The medium risk option is to go for a base rate tracker, as the BoE is not under pressure to raise interest rates - but these will be middling expensive!

The higher risk option is to go for a standard variable, which the bank can change at any time... but this option gives you the freedom to shift to a cheaper bank (if you can find one).

With any of these options your repayments will come down, so if you OP the difference between the new payment and your old payment, you will find you hit the magic 85% LTV and then even better rates become available to you.

So you need to weigh up your appetite for risk, and how long it would take you to hit the 85% mark under each of the scenarios outlined above and are you willing to take the risk of, say, the regular rate for 6 months and then when you are below 85% shift to a new fix or BoE tracker.

I hope all that makes sense!