Remortgage - worth paying 1% ERC?

getmore4less

Glastoun wrote: »

I added the £950 at the end just as a notional extra cost - if I added it to the beginning it would accrue interest in my calculations.

Which is the correct way to do it.

If you don't add it to the new loan you have to take the amount off the current loan.

Glastoun

I don't follow - which is the correct way to do it?

Did you mean 'take the amount OFF the current loan'?

If we did move, we would pay the £950 out of our current account - so wouldn't pay any interest on it as we would if we added it to the loan, and 12 months down the line we would have £950 less than we otherwise would have (plus any current account interest).

PBA

amnblog wrote: »

Everyone is getting exciting about the maths but the simple fact is that paying 1% to drop the rate by 2.71% (annual equivalent) simply works with regard to a saving.


Whether the suggest action, product, or rate is right for the OP is a different question.

Spot on, if you pay 1% but it saves you 2.71% then it's clearly cost effective to do it.

The big gamble though is with future interest rates. With the status quo you're reviewing your deal in a year, whereas if you change now you're next reviewing in two. So if rates are higher in two years time than they are in one this would reduce your saving.

Glastoun

PBA wrote: »

The big gamble though is with future interest rates. With the status quo you're reviewing your deal in a year, whereas if you change now you're next reviewing in two. So if rates are higher in two years time than they are in one this would reduce your saving.

Again, with the broker's assumptions, he went straight for a 2 year fix. Why not a 3 or 5 year fix, or even a tracker? Are trackers a bad move at this point in time?

getmore4less

Glastoun wrote: »

I don't follow - which is the correct way to do it?

Did you mean 'take the amount OFF the current loan'?

If we did move, we would pay the £950 out of our current account - so wouldn't pay any interest on it as we would if we added it to the loan, and 12 months down the line we would have £950 less than we otherwise would have (plus any current account interest).

You have to model the same starting point, cash/debt, if you are going to pay the £950 if you switch then you need to use the £950 to overpay the current deal or account for it in savings.

easier to just stick with the overpayment unless you have high rate savings.

You then need to model the same cash flow easy way is make the payments the same.
(set to interest only and a payment, term is not relevant)

If not you are not comparing like for like.

Modifications like having money in savings/investments is a separate calcs you can do for any mortgage.

(fixed previous post)