10 year fixed mortgage problem

peachyjim

Hi I'm here for advise as I'm getting conflicting results/answers. Here's my dilemma. We entered into a 10yr fixed mortgage 2 years ago at 3.89% loan of £204k (now £193k) monthly payment £917 but we have always paid £1100, mortgage based over 33 yrs but with overpayments effectively 23yrs, but affords us the opportunity to reduce our payment if we have a bad month in extreme circumstances. My mortgage co has said I will owe £140k on my mortgage if I continue with overpayments at the end of the term in 2024.
We moved into our property 3 years ago, have a young family, secure jobs, and have no intention of moving again. Property value approx £360k. I like the security of knowing my monthly payments long term and thought at the time of taking the 10yr fixed rates were highly unlikely to drop much more (how wrong I was)
I could now get a rate of 2.49% over 19 years for £206k (current mortgage plus redemption penalty of £11500, yes I know, ouch) with a monthly payment of £1117, the mse calculator predicts I would owe in 8 years (the remaining term of my current deal) £131k therefore saving £9k over the 8 years.

So my question is are these figures correct. I've had conflicting advise, one independent advisor said its not worth it as 1.5% difference in interest rate is approx £140pm so multiply by 96 = £13440 so only a small saving. Another from the same company said I'd be £6k better off and mse calculator £9k, so I'm stuck what to do, any advise would be greatly received.

Thrugelmir

I could now get a rate of 2.49% over 19 years

Where? Unless it's a fixed rate there's absolutely no guarantee. You can only base assumptions on what's known.

amnblog

You are paying 6% to get out of a deal with 8 years to run.

Mathematically, saving 0.75% a year leaves you even on cost in simple terms (you need to save a little more as the effect of the lower rate reduces as you pay off more capital).

You have to allow for fees and costs into the new product.

peachyjim

Yes this would be another 10yr fixed at 2.49% with Coventry. Saving 1.39%. So I need to work out will I be better off in 2024 by adding the 6% redemption to my existing borrowing £193. Thanks

AnotherJoe

So to summarise,youve already been bitten once by a very long term fix and you're planning to do it again ? Most likely with more rate drops on the way as well so you'd be in the same position in a year or two?

I think you've mixed up two different objectives. Having certainty, and having a low mortgage rate. Getting both is wanting to have your cake and eat it.

If you are absolutely set on getting another 10 year fix (you typo'd it as 19 in your first post) I'd say wait a year or so otherwise you are getting another fix just as rates are about to drop again. Brexit makes it very likely that the UK will have low rates for a fair time to come as it helps the UK economically in multiple respects that are way off topic to go into here.

getmore4less

you have to do like for like or take account of the difference(like monthly payment)

The simple check is

We entered into a 10yr fixed mortgage 2 years ago at 3.89% loan of £204k (now £193k) monthly payment £917 but we have always paid £1100.

after 10 years paying £1100 £139,775

assuming exactly 2 years have passed should have £193069 left

I could now get a rate of 2.49% redemption penalty of £11500

add the ERC and make the payment the same and see whats left in 8 years

£204569 @2.49% £1100pm 8 years £132,891

£6884 better off (if that rate does not change and no other fees)

break even is less than 5 years.


Does the ERC change any time soon.
There may be other ways to reduce the ERC.

edit. Coventry fees could be up to £1k depending on product adding that the owing after 8 years is £134,111 £5664 better off

getmore4less

looking at a 5 year fix, your current deal would be £161,722 in 5 years

to break even with a £11500 ERC>

£204569 £1100pm 5 years to get to £161,722 2.517% or better

Whats the best 5y fix you could get?

dunstonh

Fixed rate mortgages are not about getting the cheapest deal. They are about security and certainty of payment.

You have to measure the cost of getting out of the deal (and into an alternative) over the remaining term of the deal and not the term of the mortgage. Paying 6% means you need to recover that cost in 8 years.

. I've had conflicting advise, one independent advisor said its not worth it as 1.5% difference in interest rate is approx £140pm so multiply by 96 = £13440 so only a small saving. Another from the same company said I'd be £6k better off

That is a very strange set up. In most cases, you would expect to have an IFA who deals with you. Not multiple IFAs. That would lead to conflict and stepping on toes. That said, most IFAs dont do mortgages any more. They leave it to the mortgage advisers. So, maybe one was an IFA and the other was a mortgage adviser.

getmore4less

amnblog wrote: »

You are paying 6% to get out of a deal with 8 years to run.

Mathematically, saving 0.75% a year leaves you even on cost in simple terms (you need to save a little more as the effect of the lower rate reduces as you pay off more capital).

You have to allow for fees and costs into the new product.

How did you come to that conclusion?

The maths say better off by loads.

edit : for got to add...
if you keep the payment the same the effect increases as the capital reduces because of compounding of the overpayment.

peachyjim

Thanks for the help so far, I'm still no nearer to a clear answer whether I would be better off in the end.
I spoke to Coventry today and they couldn't/wouldn't give me a future balance. They said they don't have the tools, I find this hard to believe as there are no variables £1100 pm for 10 years, 19 year term??? Is it that they know I won't be any better off or do they honestly not have the tools on their system!

getmore4less

peachyjim wrote: »

Thanks for the help so far, I'm still no nearer to a clear answer whether I would be better off in the end.

Why not?

The calculations are very easy just use a mortgage calculator

http://www.whatsthecost.com/mortgage.aspx

Does the job. especialy easy if you have a payment in mind as you can set to interest only and the term you want to check over and see how much is owing.

Make your starting points equivalent by adding all the fees.
Pay the same amount to each debt and see how much is left at the end of the period.

the actual results will be a little different depending on exactly how the lender works but not by much.

When the savings are in the £1000s you can ignore that.

your two mortgages are(adjust for real numbers and any extra fees)
1. £193069 @ 3.89% (8 years left)
2. £204569 @ 2.49% with the fees added

£1100pm for 8 years on both you will owe

1. £139775
2. £132891

if you look at the details break even is just under 5 years.


You can ignore the full term it does not matter what you pay is the important number.