Help on remortgaging calculations

OXFORD_SMOGGY

Hi all I've come to the point of my first remortgage ever, Ive used the tool but I dont want to be lazy and assume that is right, so here is my situation. I think it is better to come out of my fix early and switch now we are under the 80% LTV and the interest rates have significantly dropped. I'm in a position where we are able to pay slightly more.


House value- £400,000 (based on recent sales in street)
Purchase price- £350,000
Mortgage debt- £307,455
LTV- 77%


Current mortgage- HSBC 2 year fix August 2015-August 2017 @ 3.29%
Early repayment fee- £3000
Current monthly payment- £1542
Current payments based on 25 year total


New proposed mortgage- HSBC 2 year fix August 2016-August 2018 @ 1.44%
Setup fee (inc valuation)- £1750
New monthly payment- £1623
Payments based on 18 year total.

From the tool it recommends only switching if I get a rate of less than 1.71% which this comfortably beats.

My questions
1-What is the simplest way to work it out, based on spend over 2 fixed years compared between the 2?
2-I have £10,000 sat in 5% current/saver accounts, should I be using this to overpay? I know it is suggested if you are getting more interest on saving over mortgage it is better to save, but I cant see why, overpaying will save me thousands in the long run but my savings are only accruing £500 a year in comparison!
3- Is is wiser to add early repayment charges to the mortgage or pay off with savings?
4- Should I actually just reduce my monthly repayments and put more into high interest accounts?
5- Is it wise to remortgage now or should I wait for the last cut in interest from the Bank of England to come into effect on 1st of September?

Thank you kind souls

fewcloudy

OXFORD_SMOGGY wrote: »

2-I have £10,000 sat in 5% current/saver accounts, should I be using this to overpay? I know it is suggested if you are getting more interest on saving over mortgage it is better to save, but I cant see why, overpaying will save me thousands in the long run but my savings are only accruing £500 a year in comparison!

But £500 a year also equals thousands in the long run doesn't it?


If you overpay your mortgage you are basically paying back your debt to whoever lent you the money. And that lender is charging you interest (but only at 1.44%). So it seems straightforward from a mathematical view that it would be better to put the money into an account that pays 5% interest, and use that to one day pay off your remaining mortgage debt early.

But it isn't just a mathematical/economical choice IMO. When you overpay, the money has gone each month and is no longer available/tempting to spend. No matter what you'd LIKE or NEED in the future years, you can't 'dip-in' to the money you overpayed with, it's gone. But you could if it's sitting there in a bank account.

You also get to see your mortgage debt reducing in real time.


The other things you ask I'm not sure about, sorry.

fc

LONDON_SMOGGY

Ok so I just phoned up HSBC to try and change to the 1.48% special 2 year fix, and they say I can't add ERC to my mortgage! Is this normal? The MSE guide says you can.

After another payment my situation is now:

Debt: £306,762.79
Months left of fix:11
ERC: £2510

Assuming I can't afford to pay off the ERC in cash do I have any other options?

Thrugelmir

LONDON_SMOGGY wrote: »

Ok so I just phoned up HSBC to try and change to the 1.48% special 2 year fix, and they say I can't add ERC to my mortgage! Is this normal? The MSE guide says you can.

Lenders will set their own terms of trade. The MSE guide is just that, a guide. So not to be relied on.

LONDON_SMOGGY

What would others do in this situation, wait until the fix end in 11 months and hope mortgage rates are at 1% by then, or pay 2.5k to leave ad change to 1.5% now?

LONDON_SMOGGY

Im not sure if it is worth waiting for them to drop further and my house value to increase to over the 75% LTV. Also I found out HSBC would not let me add the ERC to the new mortgage

Thrugelmir

LONDON_SMOGGY wrote: »

Im not sure if it is worth waiting for them to drop further

Rates over recent years have been influenced by the BOE Funding for Lending Scheme. Some lenders have a residual amount that can be drawn down. Hence the better rates being 2 year fixes. From 2018 this money will start being repaid by the lenders as the scheme winds down. Without alternative schemes the logical conclusion is that this will cause rates to nudge upwards. As market forces will then determine the price of funding for lenders.

LONDON_SMOGGY

not sure if it is worth paying the 2k leaving fee ERC to change, given there are likely future movement in the future, would people sit and wait or jump on the 1.44% fix

getmore4less

Mortgage debt- £307,455

August 2017 @ 3.29%
Early repayment fee- £3000
Current monthly payment- £1542
or
August 2018 @ 1.44%
Setup fee (inc valuation)- £1750
New monthly payment- £1623

You have to recover the £3k in 1 year

paying the same £1623 over 12months
£307455 @ 3.29% £297,940
£310445 @ 1.44% £295,338

£2.5k better off switching

add the fees
£312195 @ 1.44% £297,103

Still ahead £800

you need to do the numbers for the lower debt, ERC and 11months

LONDON_SMOGGY

Good way of looking at it thanks. So given interest rate could drop even further, not worth all the upheaval to switch for a yearly saving of £800.

getmore4less

LONDON_SMOGGY wrote: »

Good way of looking at it thanks. So given interest rate could drop even further, not worth all the upheaval to switch for a yearly saving of £800.

Not quite,
Your saving over the ERC is higher than £800 and if the ERC has dropped you may be even better off.

You are just delaying the fees that's why I split them out

As you could cover all the cost within the year you are trading the chance of a lower rate against being locked in for another year(or back where you are now with a new ERC and set of fees against a new deal with just fees.

It would be possible to calculate the rate needed to be no worse off after another year.


Still need to recheck for 11/10 months there is a £500pm difference in capital payments between the two options so the numbers will be different now.

You have the added complications to the numbers

You will be using some of your £10k 5% savings to pay the ERC and maybe the fees

if you stick with the current deal what's your net savings rate?

if you go with the new rate your saving will be better so longer term and save rather than overpay will be better.

if you really believe the rates will go down what's the best tracker on offer?