Calculating wether to ditch the fixed rate

mpawlett

Hi,


We are looking at moving to a new more expensive house (new build), but I can't work out if its worth ditching the 3.98% fixed rate and paying the early redemption fee of around £5500 - to start a brand new mortgage for the new house price. The current mortgage was for 5 years and has 3 years left in May and is with the Post Office (Bank of Ireland)


We have 112k left of the current mortgage, but would need to borrow 100k more for the new house.


How can I work out if I'd be better paying the £5500 and starting a fresh mortgage, or sticking with the current deal but adding a second mortgage to this (as I am unable to add the extra 100k to the current deal)


thanks
Martin

audigex

You probably need to talk to a broker and crunch the numbers for each alternative.

My instinct would be that £5500 is a big fee which you'd never recoup from the lower interest payments, and that you'd be better off taking out a separate 3 year fix on the extra £100k, then refinancing them both together as one combined mortgage in 2018 when both fixes run out.

Your only issue may be if either mortgage company doesn't like the arrangement, as one would be behind the other in priority of payment if the house was repossessed... this may make it trickier to secure the second mortgage, or may require a better LTV.

As I said, best talk to a good broker

getmore4less

Its actualy relatively easy.

First find the best deal you can get for the extra £100k with the post office.

They may have a few options so make a list.

If they won't lend that makes it even easier.

Work out what payement you want/afford by fiddling with the terms.

There may be options here depending on rates and overpayments

You can then use a calculator(2 off) to work out how much you owe at any point in the future.

3 years would be a good point to look at as that is the major change in fees.

Then add all the fees to any new deal st the payment and see if you owe more or less than the ported+ top up.

getmore4less

audigex wrote: »

You probably need to talk to a broker and crunch the numbers for each alternative.

My instinct would be that £5500 is a big fee which you'd never recoup from the lower interest payments, and that you'd be better off taking out a separate 3 year fix on the extra £100k, then refinancing them both together as one combined mortgage in 2018 when both fixes run out.

Your only issue may be if either mortgage company doesn't like the arrangement, as one would be behind the other in priority of payment if the house was repossessed... this may make it trickier to secure the second mortgage, or may require a better LTV.

As I said, best talk to a good broker

You have to be carefull with instinct a thread yesterday had people thinging a £5k fee was going to be too much on a 5.99->1.99 switch they were £8k wrong over 3 years.

It will really depend what rates are available the starting point is lower and the LTV may make the better option out of reach.

Once the OP knows what rate they can get for the £100k as a top upthey can think about the options.

audigex

With a 4% interest rate swing I'd perhaps have crunched the numbers before commenting, but in this case, doubling the borrowing, I can't see him getting a significantly better rate than 4%. Perhaps 3% as rates are low at the moment, but even then we can halve the difference because the second mortgage would be on that lower rate anyway: it only applies to 50% of the total.

A £5.5k fee to gain perhaps 0.5% or 1% overall MIGHT make sense, but still, my instinct is that it probably won't unless the OP has problems finding a lender willing to be the second mortgage with a fairly high LTV.

As I said, it's worth crunching the numbers to see how things lie: but my suspicion is that it won't. A good broker will take the legwork out and he's going to need one either way.

getmore4less

what's the rate needed, light on detail but lets go with £112k over 20 years 3.98% paying £678pm. ERC £5500

start with just the current loan. and in 3 year

£112000 @ 3.98% £678 3y £100300
£117500 @ 2.20% £678 3y £100302.

thats the target to cover the ERC no fees

post office top ups are.
http://www.bankofirelandmortgages.co.uk/fs/doc/c0230a-ec-resi-further-loan-06-03-15.pdf

Nothing close there and hints that LTV was 85%(ish) when take out

LTV will determin if ther earea ny options.

mpawlett

That's for the replies, I'm due to have a meting with the PO in the next day or so, so will get some advice off them as to what do to (I know they can't tell you what to do, but can give me some advice)