Newbie - remortgage help

Jesseonhistravels

Hi there

I'm a relative newbie to MSE and would dearly love some advice on what we should do re our mortgage.

We took purchased our house in 2010 for £173,500 and took out a mortgage for £156,150 at a stonking rate of 6.89% fixed for 5 years. Now I know you are all drawing breath right now and shaking your heads but (and there is always a but) it was the only mortgage we could get at the time that allowed us to purchase in the allocated time frame we had (previous owners divorce etc). We had applied for a better mortgage with Newcastle BS but they were really dragging their feet and we had to speed up or we would have lost the house at a fantastically reduced price by nearly £15k. Our current monthly payment is £1403 – based on a 15 year mortgage. We can afford it but it does hurt us some months.

Two years down the line, we’ve done some work to the house, mostly cosmetic, and houses on our street are selling top of the market and quickly. Also these houses are one bed less than ours and obviously nowhere near as nice! We are not looking to move house although would do if the right house came up. We would like to look at a way to cut our mortgage payment each month (if possible) and pay our mortgage off quicker. I’m 44 and OH 52.

I’ve been looking at mortgage comparison websites and a Virgin One account is ticking all the boxes currently as it “makes out” we could cut our mortgage length dramatically but if we come out of our current mortgage by August this year we would have a penalty of approx £6285 to stump up. L

What would you do? Does anybody have any tip top advice? How would I work out if it’s financially better to come out of our current mortgage and swallow the penalty and change to another product?

Thanks in advance.


Jess

DannyboyMidlands

6.9%?! You will probably end up paying the fantastic reduction of £15k straight to the bank in interest.

Anyway, what's done is done. What rate do you move onto after 5 years? What is the significance of this August? Is the penalty lower after August? If so, what is it?

As an example, if you could remortgage to say 4% then you would be saving £4.5k per year in interest.

At 3% you'd be saving £6k.

Jesseonhistravels

Hi Dannyboy

Knew I'd get that reaction on the rate! We move to the standard variable rate(RBS). August is the month we moved into our property/started the mortgage and I checked the docs this morning and thats what is stated in the T&C's of our mortgage. If we come out of the current mortgage deal by a certain date in August 2012 we pay £6285 penalty. It drops to approx £4500 in August 2013 and so on.

Thanks for your response.

DannyboyMidlands

Sorry, I couldn't help it.

Depending on the rate you can get, the saving is very close to the penalty charge. Funny that. It's seems like they knew what they were doing when they dreamed up this product.

If you have enough equity for a rate around 3% it would seem worth remortgaging and taking the hit. After August.