Ditch a fix

Discodave1987

Hi All,

I have a query about ditching a fixed rate mortgage?

I think I make a saving but the calculator on this website says I won’t. I know it’s only a guide but before I do anything I want to make sure the saving is genuine and not something I’ve made up lol. I feel like I’m missing something fundamental and however I look at it I always come back to the same figures.

I’ll use round figures to give you an example that aren’t a million miles away.

Currently I‘m in a five year fixed deal at 4.24% and paying £570 per month. As I see it over the 60 month term in total I pay back £34200.

Now if I factor in all the early repayment charges and set-up fees on a new mortgage and add them to the remaining capital I end up with a new figure of £97000.

If I keep the remaining term the same over 20 years and find a five year fixed deal at 1.99% my new monthly payment would be £490.25.

To do a like for like comparison I will have paid 39 payments at £570 (£22230) and 21 payments at £490.25 (£10295.25) this rate then carries on. In total then over the same term I will have paid £32525.25. This gives a saving of £1674.75.

I know this isn’t a massive saving but my lower rate will then continue giving me more surety in the next 5 years.

Will I be saving or am I missing something fundamental that’s showing me a false saving.

Thanks

AnotherJoe

The difference in interest rates is 2.25%

I dont know what your sum outstanding is but lets say its £90k.
So each year you would save £2,025 in interest compared to the higher rate.

As you are in a five year deal and looking to switch i presume you didnt take it out yesterday, so lets say you will end up with a four year mortgage, so you'll save 4 years interest, £8,100.

So if the fees and ERC are less than £8,100 you are winning by switching.

p.s. i guess your confusion is most likely because as these are repayment mortgages you are paying some capital back at the same time as paying interest so you cant just compare the two sets of payments without knowing what the outstanding sum at the end is of each. Its better just to look at what you pay in interest only.
And As I alluded to dont use a five year comparison because your five year fix wont have five years to go unless it started yesterday. You need only to look at the remaining period of the five year fix. How long is that?