No worth switching to cheaper deal for small mortgage...?

nkomp18

Hi all,

I have a small mortgage (£39k) and I want to repay it as quickly as possible. I can easily repay about £3k per month towards it and possibly a bit more.

However the current plan with interest rate of 2.05% is coming to an end 1st of August and after that the rate doubles to 4.10%. On the upside, all penalties and early repayment charges also get removed.

I've been trying to decide if it's worth just sticking with this and getting repaid as quickly as possible, or whether I can switch to a cheaper deal (There are some as low as 1.24% that I could take) and then repay it over time.

I've been crunching numbers all day and I think the verdict is in. No matter how I look at it, it seems that I should stick with the high interest rate and just repay it as quickly as possible. I calculated that I can repay it in 10 months and the interest I will incur is £1800.

However switching to another deal costs at least £1000 to begin with and then stretches over a minimum 2 year period with early repayment penalty charges and all that stuff.. so the interest at the end will definitely be a lot more than £1800 even though the interest rate is low.

Is there maybe some type of mortgage that might be good for my situation that I didn't know about? I think I am doing the right thing but then again maybe there is something out there that I didn't know about, like mortgages especially designed for small amounts like this that need to be paid quickly?

edinburgher

In theory any mortgage with a lower rate than 4.10% and no arrangement fee/legal fees would save you money, but it wouldn't be much.

I'm not sure that I agree with some of your calculations, but the amount saved would be in the very low £££s, even if you can find a mortgage that meets the description above.

nkomp18

A mortgage with lower rate comes with a cost and then forces you to spread out payments over a minimum 2 year period which means, more interest in the long run. It also penalises overpayments.
So, I don't see how it saves money, I think it costs a lot more, unless I can find a type of mortgage specific to these situations, if it exists, which I don't think it does

edinburgher

Flexible mortgages exist with no limit to overpayments. If you fully overpay (even with a theoretical minimum of a 2 year term), there is nothing to pay back, so no further payments.

nkomp18

I had a quick look at "flexible mortgages" and the HSBC one, which offers the best rate of them all, currently comes with
Product Fee:£1,499
Valuation Fee:£173
And it's fixed over 2 years.
I think I'll stick with my gut and just repay it off quickly with a high rate because I will save thousands that way

edinburgher

Do you think it might be worth a chat to a whole of market fee free mortgage broker? They'll have access to a lot more than just a Google search to advise whether fee free flexible mortgages exist that might suit you?

Would probably take 20 minutes of your time to complete an online enquiry form and then an hour or so on the phone? I don't disagree with your gut feeling, but you might like to check with a professional if you're like me and prone to regret down the line!

nkomp18

I actually made a call to L&C Mortgage Advice and they said that it would take a few months for the mortgage application to go through (no idea why they are so slow, I can renew my current deal online in a few seconds) plus they have an enormous array for questions to go through which will take 30 mins over the telephone, and frankly, I think it's really going through all this hassle just to find out that they have nothing. Or at least, they might have something but I think the chances are quite low.