Worth paying early repayment charges and switching?

leanne86

Can anyone offer any advice please?


Bought house 2010 £156000

Natwest mortgage £140400 (90% LTV 5 year fixed at 6.34% - 30year)

3 years into mortgage now, 2 years left on fix.

Balance on mortgage is 135228

Have added a conservatory – paid £12000 for this.

If conservatory added £3000 to the value of the house (makingit worth 159000) then we would already own 85% of it (just) opening up lowerinterest rates to us.

I am wondering whether it is worth us considering paying theearly repayment charge of £2705 to leave Natwest 5 year fix

New mortgage (for example Santander 2 year fix 4.8% 25 year) this wouldreduce our monthly mortgage payments by almost £150 a month and would also shave2 years off our total mortgage loan term.

This would all depend on the house increasing in value by£3000 (would be unaffordable for us otherwise to pay £3000 plus early repaymentfee at this time).

Am I doing my maths right? Seems too good to be true that I couldsave about £16000 in interest over these next 2 years, reduce my monthly paymentsand take 2 years of the total mortgageterm? Also how would I go about this, as I would need the valuation pretty muchat the beginning of the repayment process to know whether it would beaffordable to go ahead with it or not? Will they just revalue based on previoussales price or will they take into account improvements?

Thank you in advance so much for any comments/advice.

Radiantsoul

I am not sure if you have your maths correct.

The loan is £135k. At 4.8% the annual interest is c£6.5k at 6.34% it is c£8.6k. So you have an annual saving of £2.1k per year(1.54% difference in interest rates multiplied by 135k). So there is a case for moving.

You need to consider arrangement fees, legals, etc. you also need to consider the follow on rate. Santanders is 4.74% and Natwest is 4%. This would worry me slightly.

leanne86

Thanks very much for your reply.

At present Santander offer free legal/valuation etc so that shouldn't be an additional cost.

I was also taking into account that I have 27 years left on current payment schedule but would be switching to a 25 year mortgage. I am assuming this is more beneficial than it really is? I was calculating 2 years worth of interest which would technically be erased If I shorten my mortgage by 2 years?

Im confusing myself now! Just don't want to leave things if its possible to save a bit.

Thanks again

Radiantsoul

So I guess you will pay £870 per month till May 2040 at the moment or about £770 to May 2038 with Santander. But this assume the SVRs are the same as your current rate.

I feel you should only really look at the "lock in period". After the two years you will be worse off with Santander. You will owe about £128k in either case and so will pay an extra 0.75% with Santander, which is an extra £50 per month over the whole term. That is £128k*.0074=c£970 in year one of the SVR falling over as the balance reduces over time.

StuC75

Only use the years of the fixed rate period (2 Years) as the comparison.. Looking beyond each products fixed rate is irrelevent since they would be on svr at that time and anything could happen then.. - what is your current lenders SVR?

Use the mortisation tables to see what each product has left as a balance at the end of those years.

Then Old payment - New Payment X fixed period tells how much saved over those years..

to Give it context, Im 'fingers crossed' going through a Transfer of Equity and need to pay down to 85% equity.. paying £1,200 ERC will save me £230 per month for 12 months (over existing product - as rates going from 5.49% to 3.99%)..

At the end of the 2 year fixed period; I will be less than £800 behind where I would have been on the original mortgage product - but hope to use the mortgage payment saving to make overpayments..

from what I can see your payment is reducing for £870 to £770 per month (£100), which for 2 years is saving £2,400 - so is less than what your ERC is..

leanne86

Arr OK I was looking too far ahead it seems. My payments would go from £872 to £736. So £136/month saving *24= £3264 minus ERC = £560 so not so great.

Thanks for the help. Just frustrating being locked in to such high interest, but I guess I should try forget about it for maybe another year and review then. Would be interesting to know how much value if any the conservatory has added though.

Thanks again

Radiantsoul

The advantage is slightly more than £100 per month as you are repaying a bit more capital with Santander.

My feeling is there is not a huge gain, but there might be other lenders in the market. Nationwide seem to be at about 4.1% with a 3.99% follow on rate.

leanne86

Thanks ill check Nationwide out and do the maths on that one. May consider simply making overpayments for the time being, won't get me out of the current high interest but would put me in a better position in two years time.

StuC75

by all means speak to estate agents to get a feel for the valuation. Maybe ask whats likely to add the most value, so could gauge whether best to paydown or practical improvements that would add more value in 1 or 2 years..

I assume your ERC goes down each year? 5/4/3/2/1?? do you look to improve over the next 12 months, in which time the rates may be even lower? equity touch higher and erc lower...