In deal switch Nationwide 10 year fixed existing customer query

aimex

Hi guys

Currently with Nationwide 4.14 % fixed (5yr) until Nov 2016 repaying capital and interest. Current monthly repayment is £836.99. Have £129k outstanding over 18 years 11 months. Have just seen the 10 year fix deals for existing customers (2.94% with a £999 fee or 3.04% with no fee). Spoke to nationwide and they've confirmed we could potentially do an in deal switch to this deal now but a penalty of 5% would apply which they've confirmed is approx £6500. This is an upfront penalty and not added to the balance.

I am therefore considering this but need to work out if it's worth it. I know we don't have a crystal ball but I believe rate would be more than current rate in 2016 when we look at deals and am keen to have the security of knowing what monthly payments would be for 10 years.

So my question is how do I work out what we'd save between now and nov 2016 ie how do I work out what the monthly payments would be at both 2.94 and 3.04% so I can then compare this with what we are currently paying? As I would then try and work out what I'd pay monthly for the next 10 years based on our current rate (4.14%) in order to work out whether wed be better off fixing now and paying the penalty or not.

I hope I've been clear. Maths is really not my strong point and I know that this comes so easily to many of you who I hope would be able to point me in the right direction. Many thanks to all those that have got this far in reading this post. Wanted to make sure I had all the info down.

Thank you x x

amnblog

What you are suggesting is paying 5% now to break a deal 21 months early.


I make that £6,450 cost or £307 for each of the 21 months.


You wont save anywhere near that in the next 21 months (using the 10 year rate you might save half of that outlay) so you are out of pocket between now and November 2016.


Whether it is worth it to you to pay over £3,000 extra for the security of a 10 year deal today, is a question only you can answer.

aimex

Thanks for the reply. I know jt we obviously be an outlay now but I'm querying whether I will make this back over the next few years plus then have the security etc. A bit confused about the 3,000 you were speaking of?sorry I'm really not with this financial maths or any maths for tjay matter x

amnblog

The extra cost making the change now rather than in November 2016 (assuming nothing changes) is in excess of £3,000.

aimex

Oh I see thank u for taking the time to reply. Fairly confident that rates will be higher by then. Do you know how to work out what the monthly payments woild be at both rates?

amnblog

Yes I do, but either way it will cost you several thousand to make this change so you need to be very keen on certainty.

amnblog

amnblog wrote: »

Yes I do, but either way it will cost you several thousand to make this change so you need to be very keen on certainty.

One rate will save you about £129 on interest at a cost of £7,449 - the other a £118 per month saving at a cost of £6,500.


It will take you nearly five years to get your money back.

lee111s

If you have £6500 cash to pay for the fees have you considered paying that off your mortgage as it is as an overpayment?

aimex

Thanks Lee. Could only pay back 500 a month and wouldn't give us the certainty of knowing what the mortgage payments will be for the next 10 years x

amnblog

The £6,500 will be added to the loan Lee.

JimmyTheWig

I'm not quite sure what figures you are wanting, so probably best to use a mortgage calculator. This site has some. Google will find others, no doubt, if MES's calculators don't give you what you want.

The difficulty with mortgages, sometimes, is finding a reasonable like-for-like to compare with.

The two 10 year deals work out the same as each other by my back-of-an-envelope calculations. So lets consider the fee-free one to make things simpler.

Scenario 1.
You pay your ERCs and take the fee-free 10 year fix at 3.04%.

Scenario 2.
You keep your current deal for the next (just under) 2 years then take a fee-free 8 year fix.
[I am well aware that 8 year fixes don't tend to exist. This is my point - we need something to compare against.]

Using some of amnblog's numbers, the 8 year fix you get in 2 years' time would have to be over 3.44% to make scenario 1 better. An 8 year fix in two years' time that was under 3.44% would be better than scenario 1.

What will long term fixes be like in 2 years' time? No-one knows. Will they be 0.4% higher than today's long term fixes? Maybe, maybe not. That's the decision you need to make.

[You may want to independently verify my calculations, rather than just take my word for it.]