Bit lost in amongst all these figures

hippydip

Hi all

Been looking/reading this forum for many years and have been inspired (at times) by the advice that is around ... however .... we've got ourselves in a bit of a mess with loans/cc etc. My plan is to complete the budgeting thing that is on line and clarify all debts but in the mean time I wanted to ask a quick question about mortgages (this may not be the right place but it is about getting debt free).

We have a £161,000 mortgage on a £280,000 house. When we got the deal it was a 4.14% deal with Bank of Scotland for 5 years.

The house was valued then at £240,000. We are fixed in with the BoS deal until Feb 2018 - it would cost £5000 for early re payment if we were to leave.

I see that we have 56% equity and on deals for new mortgages I see we could get 1.74% - no set up fees with HSBC - fixed for 2 years - or 1.84% £20 set up fee with Nationwide - tracker for 2 years. - lots of others too ... lower interest rates but higher set up costs.

I'm totally lost as to whether we should stay put paying £946 per month to BoS or whether we should pay early charge fee and move else where paying around £750 and pay extra £200 over payment to try and clear quicker ...

Anyone able to help? Thanks ........:D

bettyboo71

I am not absolutely certain about this but,
The easiest way to decide is to work out whether what you would save between now and end of deal (18months) is more than the £5k you have to pay. And would that £5k payment need to be added to your new mortgage, or do you have that as savings? At your quoted figures of £200 per month for 2 years, you'd be saving £4,800 so it looks pretty close. One important thing to remember in that calculation is whether your new mortgage is for the same term as your existing mortgage - ie. if you are currently 3 years into a 25 year mortgage (therefore only 22 years left) and you replace that with a new 25year mortgage, this does affect your overall amounts.
I hope that makes sense.

Also, and if you have been on here for years you will know this already, if you do decide to switch you need to be sure that you won't incur any penalties for making overpayments. So you need to be clear that any new mortgage will allow overpayments

patman99

By 2018 you might find even cheaper deals are available.

The big question is 'what will the BoS do toyour mortgage rate once the fixed rate deal ends?'

They could switch you to their standard variable rate (which my be much higher, or slightly lower). The risk in switching is that you would save £200 p/month over the 2 years, get to the end and find that your provider hikes your rates way above the BoS thus loosing you money.

The question to ask yourself is 'are you prepared to risk £5k on a 2 year gamble?'.

Btw, I think that the BoS are taking the mick with such a high early repayment fee and that it might be worth writing to complain about it. Copy in the FCA (or whoever it is that investigates banks) and you might get a reduction in the fee.

hippydip

Thanks folks for taking the time to reply

I'll def send a letter and complain about the high repayment fee, hadn't thought to do that, I suppose i'm of the ilk that you sign up for something and you have to accept it .....

I'm going to sit today and have a trawl through our papers and then search on the internet to see what might work ...

also hadn't thought to check rate after deal ends ... i'll def do that ... seems so complicated at times to make the right decision

dirtycredit

get to the end and find that your provider hikes your rates way above the BoS thus loosing you money.

Surely no one ever stays on the SVR? I usually organise a new deal so I don't spend one day on the SVR. All you do is keep switching products straight away so that you never go back on the standard variable rate. You will probably get a lower rate in two years time!

Remember to add up the full cost: the early repayment, the product fee for the new mortgage etc and take that way from the interest savings you would make if you switch to with Nationwide. You will then get a precise idea of whether its worth it.

£946-£750 =You are saving £196 a month over 20 months which is how long you Bos mortgage has left
=£3920 savings which would be wiped out by the £5000 Early repayment charge.

BUT

If you switch to a tracker and overpay you will be of course saving much more in interest over the 2 years.

DC x

theoretica

dirtycredit wrote: »

Surely no one ever stays on the SVR? I usually organise a new deal so I don't spend one day on the SVR. All you do is keep switching products straight away so that you never go back on the standard variable rate. You will probably get a lower rate in two years time!

Remember to add up the full cost: the early repayment, the product fee for the new mortgage etc and take that way from the interest savings you would make

I am sitting very happily on the SVR of my mortgage - as the mortgage sum shrinks, the product fees become a higher percentage of the total and outweigh small savings in interest rates. Exactly your point about looking at the full cost. I saw this coming, so ensured my mortgage had a fairly attractive follow on rate in case I wanted to stay on it, and the BOE cut and financial climate left me very glad I did.

andyfromotley

theoretica wrote: »

I am sitting very happily on the SVR of my mortgage - as the mortgage sum shrinks, the product fees become a higher percentage of the total and outweigh small savings in interest rates. Exactly your point about looking at the full cost. I saw this coming, so ensured my mortgage had a fairly attractive follow on rate in case I wanted to stay on it, and the BOE cut and financial climate left me very glad I did.

I'd be very surprised if there werent fee free deals with rates that smash your SVR. (i have a very small nortgage so any fees destroy the advantage of the cheap rate but have always found fee free ones that still save me a small fortune) Nationwide are usually very good for these. currently 2 year fixes for 1.99 and 5 year fixes for 2.35. i'd be surprised if your SVR is anywhere near this?

andyfromotley

OP i doubt very much if a deal would save you amy money given the time remaining and the high ERC.

(although i cant quite make your figures work, for that size of mortgage at 4.14 i am coming up with a much higher payment than you have at around £960 pcm which may change the equation (I suspect that may be to do with the term?)

hippydip

Hi andyfromotley .... thanks for reply ... the mortgage deal we have is sitting at 21 years 7 months left to pay - fixed at 4.14% to Feb 2018 - 946.46 per month then on to 3.990% after fixed rate ends. For the ERC we have been told by bank it will be £4839 now going down to £3500 Feb 2017.

andyfromotley

Hi hippy, no thats not going to work for you then. On those figures theres no way on current interest rates of 1.99 (fee free) to make that work.

You could try to get your ERC waived but i'm highly doubtful that you will make any progress with that!

hippydip

thanks andyfromotley .... we'll just sit tight just now :-)