Switch while in a fix?

pmartin86

Afternoon All

I think I've done my sums right, but for some reason the massive differtence makes me feel like I've dome something wrong, so if anyone could confirm my thinking is correct, that would be awesome.

I took out a mortgage 23 months ago with HSBC for my first home borrowing 72,000, current balance aprox 69,300. At the time, the house was bought for 80,000, so 10% LTV. The house has had extensive work on it since and has recently been valued at £110,000. The mortgage was over 25 years with 5 years fixed at 4.85%, I've npoticed some rediculously low rates around at the moment and thoguht I'd look into the possibility of switching, it will cost around £2100 to buy out the 3 years left on the fix. With this in mind, I've noticed headline rates of as low as 1.6% with a fee, or 2.2% with no booking fee, borrowing 70,000 at this rate and not upping my payments sees my time drop from 23 years to 17 years, this seems far too good to be true? Can anyone cofnirm I'm right or wrong?

In Summary:

Current Owed : 69,300
Current Rate : 4.85%
Current Monthly Payment : £406
Current Time Remaining : 23 Years 1 month
House Value : £110,000
Exit Fee : £2,100

Proposed Switch : £69,300
Proposed Rate : 2.2%
Proposed Payment : £411
Proposed Time Remaining: 17 years

It jsut all seems "too good"

Any obvious flaws, please point them out as im scratching my head and feel im missing the woods for the trees here.

Paul

Thrugelmir

Flaws. Don't bank on interest rates remaining at current levels. Don't forget to allow for fees when remortgaging unless it's a fee free deal.

Alt

Your values are close but don't forget to add the £2100 to the mortgage amount.
£71,400 over 17 years @2.2% is about £420/month




Alt

pmartin86

Rates - the 2.2% would be fixed for 3 years. My cirrent fix only has 3 left so Im stuck with the possibility of fluxuating rates regardless

Fees - I can squeeze the £2,100 in cash up front, so that shouldn't be an issue.

audigex

You're more than halving the rate, so it's not "too good to be true" from the point of view of the revised term, if interest rates stay the same.

My 2 cents on it, though:

Personally I like to add the £2100 to the fixed term and think of it in fixed term cycles, because in 3 years the rate may be back up to 4.85% in which case you'll have to extend your term back out to 25 years and all that £2100 has done has buy you 3 years of a lower rate. Or the rate may still be at 2.2% in which case you would have gotten that rate anyway before too long, and your £2100 hasn't helped you get it.

Think of it as a fee for the 3 years (because although it's not directly a fee, the end result is the same). Your £2100 "fee" is only "buying" a 3 year rate drop - if the rates are still low in 3 years, you would get those rates anyway, so that £2100 hasn't helped you get them and shouldn't be factored in beyond that point.

By that reckoning, that £2100 is £60 a month over the next 3 years.

Even if you have it in cash up front, you'll have to pay £60 a month into your savings for 3 years to build them back up to the same level as they are now. Or if you're using all your savings, you may need to build them back up much faster!

pmartin86

Fair enough, I can see your point. I suppose the next question is what difference there is if I just overpay my current rate by that £60 a month... I think I'll have to sit down and work this all out tongiht when im not sneaking on between calls in work!

Cheers for your advice.

Paul

questionss

The other things to think about are...
Are you allowed to overpay £60 a month? It's more than 10% of your payments which is often a limit used.
An estate agent may value your property at 110000 but mortgage companies are often considerably more conservative.

audigex

10% of the payment amount? Really? Most companies I've seen which allow overpayments use either 10% of the initial loan amount or 10% of the remaining loan (usually at the start of that year). Which would be around £7k/year or £580/month.

Jhoney_2

^^

Just beat me to that audigex.

questionss

When we looked at fixing we could only pay 10% of the repayment amount up to a max of 2400 a year - it was quite a few years back, we intended to pay off the mortgage within a few years so didn't go for it anyway.

Jhoney_2

questionss wrote: »

When we looked at fixing we could only pay 10% of the repayment amount up to a max of 2400 a year - it was quite a few years back, we intended to pay off the mortgage within a few years so didn't go for it anyway.

Could the word repayment have been you had a repayment mortgage (as opposed to an interest only) of 24K mortgage balance?