Remortgage Advice Needed Please!

Subbuteo

Hi Folks


Looking for some advice with a remortgage decision please. I'm too close/been looking for too long and I need to hear some fresh ideas about it...


Long story short is...


We are 1 year into a 2 year fixed term on our first ever mortgage. We only had a 5% deposit which means we pay through the nose, interest wise (an eye watering 4.79%)


I've been toying with the idea of entering into a 5 year fixed deal at 90%LTV now (current mortgage provider has confirmed that my current LTV is 89.5% as they are valuing the house at £11k over what we paid a year ago).


So the upshot is...


It'll cost me £2,250 in early redemption fee plus £999 arrangement fee - so a total cost in cash to change mortgages of £3,250. However, I will save £234p/m on the repayment. So effectively, in year 1, the net cash position is £3,250 OUT and £2,808 SAVED so I'm down £442.


BUT because the new mortgage is 3.05% instead of 4.79%, my outstanding capital will be c. £1,500 lower after 1 year on the new mortgage than in 1 year's time when my 2yr fix is up. So in true/real terms I'm £442 down in cash terms but £1,500 up in terms of outstanding capital, so 'winning'...


The reason I'm even looking into this is because I'm scared that if house prices fall in the coming 12 months, then we could be in a position where we can't jump from a 95% to 90% product, and we'll get stuck at 95% again, when we had an opportunity to fix at 90% for 5 years at a lower interest rate.


No mortgage advisor seems to want to give me clear advice - I appreciate they can't predict the future but in the wake of the decision to leave the EU, they seem scared to even hint at what they're expecting to happen over the 12 months I'm left on this 2 yr fix.


What would you do in my position? Take the 'safe' option of fixing now for 5 years and have 5 stress free years, or see out the remaining 12 months of my 2yr fix, and hope that property prices hold steady or even continue to rise a little. Based on the valuation my mortgage provider is using, the value has risen by 4.7% in 12 months, so if that's still the case in 12 months, then we will have paid another year's worth of payments, and with saving hard, we MAY even be able to get into 85% in 12 months time.


However that could all backfire, values could be hit and we could be left with as little as 5% or even (gulp) nil/negative equity if it hits the fan....


I've never stressed so much over a hypothetical situation....I'd really appreciate some 'outsiders' thoughts on this!


Cheers

amnblog

Not sure where you got your maths from?

You are lowering your rate for 12 months by 1.74%

Unless your ERP is under 1.74% it's does not work for the period you have left.

Thinking beyond that is just guesswork.

Subbuteo

The broker has told me that the rate on the new product is 3.05% and that the repayment will be £234 per month less than we pay now

So in year one the saving is 12 X £234 (£2808) but this is outweighed by the early repayment charge of 2,250 and £999 arrangement fee - so in cash terms after a year I'm £441 worse off if I change.

However the capital outstanding in one years time will be less on the new mortgage as the rate is so much lower / don't have the exact figure to hand but it's c. £1500 less than on my current mortgage so on the face of it roughly £1000 better off in real terms ? Am I missing something basic here?

The fact that thinking beyond that is guesswork is my exact reason for wanting to fix now for as long as possible. To me it seems like there can't be a bad time to move from a 95% LTV product at 4.79% to a 90% product at 3.05% ?

Ok so in a years time that 3.05% might be 2.5% but it may also be 4%? The house may be worth another £10k or it could be worth £10k less and I have no choice but to remortgage again at 95%....

I'm naturally risk averse so fixing as long as possible at a lower rate than I'm on now seems on the face of it a no brainer.

the added point is that we'd like to start a family in the next 2-3 years, and having a 5 year period of certainty over our key outgoing would be quite beneficial.

Phil_H_MLIA(dip)_Cert_PFS

Despite your in-depth overview, there are insufficient details for a full consideration in my opinion.
However, if the 90% LTV is true then there is the potential to look at an alternative lender perhaps where although the rate may be a little higher, it may not equate to the £1k fee (obviously loan size and term would be required).
This £1k (less monthly differential) may put a different spin on things.

Find an intermediary that actually is not afraid to advise and to put those recommendations in writing.

Subbuteo

Thanks Phil. It's a 34 year term and £225k mortgage required. The £1k fee (with free legals and val) seems about as good as it'll get!

amnblog

Are you doing the maths, or is this super keen broker from Intrinsic?

I don't make it what you make it.

Subbuteo

Sorry I don't understand what you mean? Which maths don't work?

amnblog

Dropping 1.74% on £225,000 is £3,915

Subbuteo

Yeah so the £3915 represents the difference in interest charged on a 4.79% deal vs 3.05% - yes? So if we paid the same repayment then our total o/s balance would reduce by £3915 in Y1 for a total outlay of £2250 ERC plus £1k arrangement fee. So total debt reduces in Y1 by £3915 more than on the 4.79% deal, for a total cash outlay of £3250 ?

Except it wouldn't really, as the repayment drops by £230 pm - so we are repaying £2,760 less in that year. So total debt only reduces by (£3,915-£2, 760) = £1,155

So I'm paying £3250 to reduce my debt over the next year by £1155. But I'm saving £2,760 in the process. So the total benefit to me is still £3,915 saved and £3,250 spent to do so?

Have I got that right? I need a lie down!!

amnblog

You are over thinking it.

Whatever your payment, you are paying the full interest on the outstanding amount before you touch any capital.

...and who is valuing the house 5% up on last year?

Subbuteo

It's kind of a big deal that I fully understand the implications of this decision I make so i'd rather over than under think it!!


I'd appreciate it if you could please help bring some clarity to what I've presented and let me know what I'm not getting!!