Remortgage help or just try and pay it off??? Help

aj9648

Hi

I have Britannia 5 year fixed at 2.79. It's coming into its 4th year and will end in may 2018. I've being really good in paying huge chunks of capital off - started off at £150k and now down to £30k left on the balance - obviously I have had to endure some charges along the way but it's offset by lower monthly payments. Also loads of sacrifices !!

Anyway - I'm just in a dilemma what to do when this rate finishes. I'm pushing to try and get the 30k paid off by may 2018 ie in the next 15 months but will be a tight push to do it. I think worse case scenario is I'll have around £5k on the balance left in may next year. If I did pay it off would I incur a charge? What if I paid it off on the last day of the 5 years?

If i didn't pay it off, what are my options? I am assuming remortgage to a lower rate? What charges are hit with that?

Or am I better off just calling Britannia and saying I'm gonna pay off in a year - change the terms of my mortgage please?

Any helpers please? It's my first (and only) mortgage and want this monkey off my back!!

exiled_red

I am assuming that your mortgage wasn't just a 5 year deal, it was a deal that was fixed for the first 5 years? Assuming that this is the case:

If you pay it off before the end of the fixed term you would have to check the terms for any fees.

If you don't pay it off by then, then presumably when your fixed term ends you will go onto your lenders standard product which will be a higher interest rate again check the terms of your current deal. Alot of lenders won't let you remortgage for an amount less than £20-30k, (check with your lender) even if they do arrangement fees would probably mean than another deal wouldn't be any better than the standard rate, in this case just continue paying it off.

aj9648

Yes its just fixed for first 5 years at 2.79%

getmore4less

did you know when you fixed you would be in a position to make these massive overpayments?

Did you use an advise based service when you took the mortgage as this was almost certainly not the right product for you if the facts were know at the time.

with a rate of 2.79% there was a chance there was a better options than paying the fees for large over payments, may still be.

What is the current ERC.

As long as the full term is longer chances are the best option will be just carry on paying what you can.

aj9648

No had no idea and yes on hind sight could have a better deal but what's done is done I guess.

The erc is £800 with 11 years left on the term.

getmore4less

Does the erc drop at some point like end year 4?

timing the overpyments will be critical to optimizing there will come a point where you stop overpaying and keep the cash till the ERC runs out.

erin110

I know Britannia product range quite well.
You will more than likely have penalties of 5% in your 1st year 4% in your 2nd year 3% in your 3rd year, 2% in your 4th and finally 1% in your 5th. You will need to check with Britannia what date these charges reduce on sounds like May time though. So assuming this after May 2017 your charges will be 1%. Utilise your 10% overpayment allowance anything after that will be charged at 1%. After your product ends in May 2018 you will revert to their standard variable rate and your penalties will then be 0%, if you are going to continue to overpay as you have been doing then there is no point in re fixing as this will result in more changes may as well stay on the SVR at the end and pay it off penalty free.


Something to mention to you is with Britannia your CONTRACTUAL payments will have reduced but your term will stay the same. Say your initial contractual payment was £500 but its now £260, to continue to pay the £500 that you were comfortable with you would have to OVERPAY £240 per month eating into your 10% allowance. What you can do is contact them and ask to reduce your mortgage term. This way they will increase your contractual payment back up to £500 allowing your to chip away at the capital quicker without using so much of your 10% allowance. I think it costs around £50 to do a term change and you can remind on your current product.


This may not work for you if you get paid on more of an ad hoc basis.

aj9648

So just hypothetically speaking if I had the chance to pay all of it off today (which I don't) I am assuming it's better to do this and take a hit on the erc and any penalties as this would be more optimal than paying the interest?

Or do I wait for the svr and 0% charges kick in before I pay it all of? Or do I just something stupid like a £1 as the outstanding balance so the charges won't kick in?

Ps date erc expires is 30th April 2018

Thanks

getmore4less

The calculations are quite simple once you get your head round them.

for a given overpayment it saves a bit and may be free or may incur a charge depending.

IF as errin110 says your penalties are 2% today but 1% on May 1st

Assume you have used up your ERC free allowance so will incur a 2% charge but if you wait till the 1st may only 1%

you will save 3 months interest if you pay it now.

so for £100 the charge is £2 now and £1 in may

on 2.79% the interest is 23.25p per month

so for 3 months that is a saving of 69.75p but it will cost you £1.

better to wait till May.

if your ERC has been dropping 1% each year then not over paying for the 4months leading up to the drop would have saved money.

erin110

getmore4less wrote: »

The calculations are quite simple once you get your head round them.

for a given overpayment it saves a bit and may be free or may incur a charge depending.

IF as errin110 says your penalties are 2% today but 1% on May 1st

Assume you have used up your ERC free allowance so will incur a 2% charge but if you wait till the 1st may only 1%

you will save 3 months interest if you pay it now.

so for £100 the charge is £2 now and £1 in may

on 2.79% the interest is 23.25p per month

so for 3 months that is a saving of 69.75p but it will cost you £1.

better to wait till May.

if your ERC has been dropping 1% each year then not over paying for the 4months leading up to the drop would have saved money.

The principle is there but I am confused about what you have based the monthly interest on.


To make it more relevant.


£30k balance (although I think your balance may be different as a £800 early repayment penalty doesn't make sense for a balance that size. I would call and double check this.)


So £30k. 2% ERC would be £600 1% ERC would be £300


for the monthly interest I will not work this out exact as there are so many factors that can change this figure. Lets assume in this case that the balance is £30k and interest is calculated annually opposed to daily which is the case with Britannia. Annual interest would be £837, £69.75pm.


3x £209.25 suggests it is more cost effective for you to wait until May.


It would be easier to just call Britannia and ask them for your daily interest rate. The margins on this one are quite narrow so its difficult to say without having all of your details in front of me.


In the meantime though I strongly suggest that you increase your contractual monthly payment should you be able to afford it.

getmore4less

You only need to do the calculations on a nominal chargeable overpayment

I chose £100 whatever works for £100 works for any size of overpayment.

The simple flat rate/12 should be close enough for this although the numbers do change a bit if you go daily and the real number of days rather than 3 months will change it.

You also need to know how rate given compounds to do the calculation properly.