Reverting rate to good to lose?

Daz07

Hi

I am 5 years into a 10 year fix at 5.29% with the Woolwich. There is a ERC of 6% and the outstanding balance is 104k with a remaining term of 14.5 years.

It would seem a no brainier to pay the 6k ERC and get a deal around 3.29% saving 2k a year so a new 5 year fix would save 4k (10k - 6k ERC)

The thing I need advice on is the reverting rate as with on my current rate I would revert to bbbr (Barclays bank base rate which seems to mirror Bank of England rate) +0.95%.

The new deals out there revert to base rate plus at least 2.5% at the end so although I would gain in the short term I would be better off once my current deal ends in 5 years as I would be on base + 0.95 for the remaining 9 years.

Any advice would be greatly appreciated as I fear I am putting to much consideration on the future rate.

Thanks

bigadaj

That is a risk because you would almost certainly pay an increased margin, though who knows where base rate stay be in five years,or ably not at 10% but not necessarily where they are now.

To get a direct comparison you would have to assume that the erc charge is added to the mortgage, ie it is subject to interest over the term of the fix. This will reduce the margin somewhat, however it should still be advantageous and to me a bird in the hand is worth 1.5 in the bush.

Would also be worth calculating various scenarios for future rates to model the differential above base rate, this would provide some hard numbers on which to base a decision even though it is still speculative.

Daz07

Thanks for the quick reply bigadaj

As you say the harder part is calculating future scenarios, but I suppose whatever the rate is in years 5 - 14 it will be better to add 0.95 to it rather than an almost certain higher margin.

Good point about the accumulating interest on the ERC as I would have to add it to any new deal as I have no other funds to pay it separately.

Just seen a 2.74% 5 year fix with 295 fee, I will relook at some projections on this v my current deal.

Thanks again.