Ditch the fix - advice please

Mover555

Hello, my partner and I bought a house just over 3 years ago and took out a 5 year fix with Chelsea. We're about to move house again and there are a whole host of cheaper mortgages out there, plus we have a bigger deposit.

What I have been trying to get my head around is whether it's worth ditching our fix and paying a fine to move to a different provider, or keep the cash and use it to pay the higher monthly payments we'll have from Chelsea's top up mortgage.

The details are:
- We owe £156k on a £250k house (values around here have shot up, hence one reason for the move)
- Our fix is 4.99% which was best for a 10% deposit at the time
- The early repayments for years 4 & 5 is 3% - so about £6k
- We're buying a £280k house and have a decision in principle with tesco bank at 2.57% for £224k mortgage (paying the 10%)
- If we stay with Chelsea (who haven't yet agreed to lend us the extra but I can't see this being a problem) we don't pay the fee and instead have to take out a top-up mortgage for £70k~ for 2 years at which point we would consolidate the 2. This bumps up our monthly payments loads to around £1400, which as we plan to have kids this/next year will be hard to afford
- The tesco 3 year fix is £1110~ per month. It does come with a £800 product fee but I guess we'd have to pay this sort of fee to Chelsea anyway to take out the top-up?

I'm finding this slighly hard to get my head around to ensure we're doing the right thing. Can anyone help?

My heart is in the lower monthly payments as it's very easy to spend savings with a new house and babies.

Thank you!

SamDude

Mover555 wrote: »

The details are:
- We owe £156k on a £250k house (values around here have shot up, hence one reason for the move)
- Our fix is 4.99% which was best for a 10% deposit at the time
- The early repayments for years 4 & 5 is 3% - so about £6k

Think you've miscalculated the early repayment charge - surely it would be 6% of approximately £156k, so around £4600?

amnblog

The difference in monthly payments is £290.


You have less than 24 months on the Chelsea deal so the maximum you can save by swopping lender is 23 X £290 = £6,670


Looks like your early redemption penalty will be around £4,680 so the maths say the new lender is less expensive.


You also have to factor in the cash flow as you will pay £4,680 now to get it back over 23 months.

Mover555

Hi,

Thanks Aass11 and amnblog - that's interesting about the fee - I was told the figure in November when having early conversations with Chelsea about how to proceed. I don't understand now how they could make it 6k when 3% is much lower. I clearly need to go back to chelsea to check this now, but if it is only (!) £4680 then it feels like a better decision.

I am happy with recouping the cash over the months as my biggest concerns over the next 2 years are keeping a steady outgoings as maternity leave makes a big dent in income. Add to this the hassle of having 2 different mortgages with Chelsea over 2 different terms and paying SVR on the bulk for a few months before we can consolidate, it's starting to feel like Tescos is the right wasy to go.

Even if Chelsea does turn out to be right about the early exit fee for some unknown reason, it seems to even out so I don't feel I'm losing anything.

You've helped settle my mind on this, thanks again!

Mover555

It's actually a 4% repayment fee so they are correct with their £6100. I just spoke to them to confirm.

Goes to show a longer fix isn't always the best way to go, particularly for a first time buyer

SamDude

Does the current mortgage have penalty-free overpayments that you could make to soften the impact?

Thrugelmir

Mover555 wrote: »

Goes to show a longer fix isn't always the best way to go, particularly for a first time buyer

Hindsight it's a wonderful human invention.

My first mortgage was at a 10% variable rate. The month after we moved in. Base rate rose by 1% a month for 4 consecutive months. So our rate moved up to 14%.

You can base decisions on what's right for you at the time. The one certainty currently. Is that rates one day are only heading one way. So your 4.99% one day may well look a very cheap rate. (with hindsight)

hounslowfish

Why are you borrowing an extra 70k when your new house is only 30k more expensive? Or have I misunderstood?

Mover555

Houslowfish - we're paying a £56k deposit on next house as need sale cash to pay back renovation bills etc. so mortgage jumps from current £156k to £224k.
Thrugelmir - those figures blow my mind - how could that ever be affordable?! I guess for many they weren't!
Samdude - good idea but I guess it would take a lot to make a dent and we don't have much free at the moment to make worthwhile.

Thrugelmir

Mover555 wrote: »

Thrugelmir - those figures blow my mind - how could that ever be affordable?! I guess for many they weren't!
(

Tight budgeting. Walking around Sainsburys with a calculator adding items as we went. You learn to sniff out the best bargains. Back then you just got on with it. For a while I did some part time bar work.

hounslowfish

Mover555 wrote: »

Thrugelmir - those figures blow my mind - how could that ever be affordable?! I guess for many they weren't!

Houses were a lot lot lot lot cheaper back then! Why do you think prices keep rocketing? It's these cheapy cheap low interest mortgages. My dad nearly spat out his tea when I told him my interest rate is less than 2%.