Help with confusing remortage numbers

CFC

Hi

I'm confounded and need some help from someone smarter than me, after looking at the mortgage calculators on here I really can't understand what they tell me.

Current mortgage - £44614 left to pay off. 13 yrs 8 months left to go on mortgage officially (have been overpaying so in reality maybe 9 years)

Current mortgage rate - 4.19%, contractual payment £414 per month (5 year fix)
remortgage rate - 3.09%, contractual payment £333 per month (5 year fix)

I am currently overpaying £137 a month and have been doing so for a couple of years. I guess that is what skews the calculations as the whole lot owed now is recalculated over 13 years.




(pennies removed from monthly payment!)

Now I make that a payment of £81 less per month, so the exit fee for current mortgage of £446 would pay for itself in 6 months.
But to my mind that's still another £81 a month which I could put onto the £137 a month I am currently overpaying?

BUT the mortgage calculators on the site tell me that I would only save about £1000 over the 5 years!

I don't understand - on the face of it the figures tell me I would save £81 per month (which I would overpay back into the mortgage on top of my current overpayments) but this is so different from the mortgage calculator that I really don't understand. If I'm only going to save £1000 over the fixed 5 years I probably won't bother simply because £200 a year for flexibility is a reasonable trade off for me.

Can someone help me, I am totally mystified?

kingstreet

Was there a comparative remortgage product quote in that space, as without one, it's difficult to comprehend?

CFC

No the space is just me moving text around.

Having thought about it some more, I guess it is because I actually owe 44k and that is being recalculated over the remaining year left of the term if I remortgage at 3.09%.
Whereas my current mortgage payments would remain the same even though I have overpaid ie the contractual payments assume I owe more at this point than I actually do.

But at that point my maths and logic gives out...!

dimbo61

You only owe what £45K and you are overpaymentng by 30% of YOUR mortgage payment each month.
The total costs of mortgaging must be taken into account! That's every single penny.
Well done on the overpayments so far but what is the follow on rate with your existing deal ?
For me I have spent the last 8 years overpaying my mortgage as we want to be Mortgage Free asap.

SternMusik

Are you sure it is only 1% early repayment charge? Seems very little for a 5 year fix.

Assuming your figures are correct, you are right. The £446 charge will have paid for itself in a few months with the new payment being £81 less. Just make sure that your new mortgage allows overpayments! If you want to continue with the old payment of £414 + £137 = £551 you would be making sizeable overpayments of £218 each month. My own mortgage allows overpayments of 10% of the capital balance each year.

Avoid adding the ERC to the mortgage as you'll just end up paying interest on it for the rest of the term. Unless you plan to pay off the entire mortgage after 5 years you should also take into account the follow on rates.

I found that the calculators on this site aren't very accurate. For example the "ditch your fix" calculator doesn't take into account the original loan amount & term, nor the remaining term of your mortgage and thus doesn't know your monthly payment, and how much of it is interest and capital.

JimmyTheWig

CFC wrote: »

Now I make that a payment of £81 less per month

The difference in payment per month isn't particularly relevant. You need to look at how much less interest you would be paying each month.

so the exit fee for current mortgage of £446

Is this an early repayment charge because you are currently tied in to your mortgage deal? If so, when are you tied in to?
Or is this an exit fee that you have to pay when you leave the mortgage company?

You talk about the current mortgage being a 5 year fix. Is that what you are currently in? Or do you mean taking a new 5 year fix with the current mortgage company?

SternMusik

JimmyTheWig wrote: »

The difference in payment per month isn't particularly relevant. You need to look at how much less interest you would be paying each month.

It is actually quite a complicated present value calculation which depends on the capital amount, ERC/arrangement cost, the difference in interest rates, difference in monthly payments, original and remaining mortgage term, and how the difference in monthly payments is invested (i.e. does it attract a return). It also depends on the investment horizon. If you take out a five year fix, do you want the ERC to pay for itself over the five years or the remaining mortgage term?

If you want to be better off in five years' time, look at the projected capital balance of the mortgage five years from now under both scenarios, based on contractual payments. (This will depend on the original term in the case of your current mortgage.) This difference will normally be quite small if the term remains the same, and there is no big jump in interest rates on the existing mortgage. Add this difference to the total differences in monthly payments and deduct from this the ERC and other charges for a simple comparison.

This is essentially what the OP has done, assuming that the remaining balances are the same.

Obviously since the OP is some way into a five year fix, the (predicted) follow on rates would have to be taken into account for a more accurate calculation.

JimmyTheWig

Hold on, OP...

CFC wrote: »

Current mortgage - £44614 left to pay off. 13 yrs 8 months left to go on mortgage officially (have been overpaying so in reality maybe 9 years)

Current mortgage rate - 4.19%, contractual payment £414 per month (5 year fix)
remortgage rate - 3.09%, contractual payment £333 per month (5 year fix)

I agree that £44,614 over 13 years 8 months is around £333 a month at 3.09%. But I make it around £351-£371 a month at 4.19% - significantly less than the £414 you are quoting.

SternMusik

JimmyTheWig wrote: »

Hold on, OP...

I agree that £44,614 over 13 years 8 months is around £333 a month at 3.09%. But I make it around £351-£371 a month at 4.19% - significantly less than the £414 you are quoting.

The OP has been overpaying the mortgage. £414 a month is consistent with a balance of ca. £52000 @ 14 years.

JimmyTheWig

SternMusik wrote: »

The OP has been overpaying the mortgage. £414 a month is consistent with a balance of ca. £52000 @ 14 years.

Makes sense. So overpayments have decreased the term rather than decreased the monthly repayment.

In which case, OP, you cannot compare the difference in the monthly payments as you will not be comparing like with like.

SternMusik

JimmyTheWig wrote: »

Makes sense. So overpayments have decreased the term rather than decreased the monthly repayment.

In which case, OP, you cannot compare the difference in the monthly payments as you will not be comparing like with like.

I agree. However the OP may still be contractually obliged to pay the £414, it depends on the terms of the mortgage. In which case he should compare the monthly payments. He needs to make sure to take the projected balances into account which, given that he has overpaid in the past, will differ from the balance expected under the original term.