Confused about fees on remortgaging and early payment

vikkiew

Hiya

I hope to finally buy my first home soon. I will need to borrow about 150,000. I would be able to pay back up to 2,000 most months and at least 1,000 every month. Everybody I have spoken to tells me to get a 25 year deal 'like a normal person' which would require about 800 per month repayment.

My question is whether the typical 25 year duration with a 2 or 5 year fixed rate and 1 to 5% ERC would really be the best deal in my situation. I thought I could pay the required 800 or so each month saving any extra and pay it all in at the end of the 2 or 5 years without any penalty fees but apparently the ERC stays throughout even after this period and remortgaging every few years would attract various fees although still cheaper than the ridiculous SVR.

There is comfort in a fixed rate but I am starting to think a variable without ERC may be best longer term for me.

Any advice would be helpful including specific deals you think are relevant for me.

Thanks
Vikkie

Contemptuous

If you can afford a £1000 payment each month, there's nothing stopping you from having a slightly shorter mortgage term from the outset.

I think you've got your wires crossed somewhere regarding ERCs as they only apply during the fixed rate period. As soon as you revert onto SVR you are free to overpay without penalty.

kingstreet

You will normally be able to overpay by 10% of the outstanding balance each year.

That's £15k in year one on a £150k mortgage. Is that not sufficient?

expansion

What is the benefit of a shorter term? It lowers the amount you can borrow and even if that is not relevant it adds unnecessary pressure on the minimum amount to pay. I never saw the point personally. Is there a particular reason you suggest this Contemptuous?

I agree ERC should not apply beyond the fixed term, there may be exceptions but in general it goes away once the 2 or 5 year ends. So once in SVR you could pay in as a lump sum any extra you have saved over the 2 or 5 years. Most lenders have an overpayment allowance so you could pay a certain amount extra each year during the fixed term. It is usually 10% and the better lenders like Nationwide which is what I have base it on the original loan amount and not on the outstanding balance. So Vikkie with your example you could pay up to an extra 15,000 each year during the fixed term with Nationwide on top of the minimum 800 per month without any ERC. All together that would be about 2,000 per month without ERC which covers exactly the upper amount you mention as being able to pay. I am not too sure about remortgage fees, I thought it was generally fee or maybe a small admin fee is staying with the same lender, but to start off I would recommend a fixed mortgage that offers 10% allowance.

Contemptuous

expansion wrote: »

What is the benefit of a shorter term? It lowers the amount you can borrow and even if that is not relevant it adds unnecessary pressure on the minimum amount to pay. I never saw the point personally. Is there a particular reason you suggest this Contemptuous?
.

Shorter term = lower total amount payable.
I didn't "suggest" the OP takes out a shorter term, I've just said there is nothing stopping her from doing so. The concept of a "standard"
25 year term is outdated.

getmore4less

you don't need to fix.

get a mortgage with no ERC plenty of options.

buttonmoon

If you are confused I would speak to a broker and he/she will find you what bed time suits your circumstances.

I ended up with a longer term mortgage on a 2 year fix (which I overpay every month) which will be paid off more quickly than a mortgage with a 5 year shorter term (as long as I overpay by £100 per month) . Also, if I lose my job/get pregnant/write my car off, etc I can stop the overpayment and I have a lower monthly payment than if I had a shorter term.

buttonmoon

Best not bed time!