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Shall i pay the early repayment fee?

edited 25 January 2017 at 12:02PM in Mortgage-Free Wannabe
3 replies 1K views
swoodwormswoodworm Forumite
9 Posts
edited 25 January 2017 at 12:02PM in Mortgage-Free Wannabe
I currently have 1 year 6 months at 3.28% left on my current mortgage deal owing roughly 68408 term of mortgage is 14.6 years

With rates so low, but Martin predicting they will rise this year, i am wondering whether to take the hit of a 2% early repayment charge (dropping to 1% in July) and swap lenders?

My LTV is 52%.

Any Help would be appreciated

Replies

  • ch4rly2002ch4rly2002 Forumite
    455 Posts
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    I really recommend London and Country mortgage brokers. They don't charge a fee and I find them very helpful. When I couldn't decide if it would be better to pay a fee and get a lower interest rate or get a fee free deal and pay a slightly higher rate they were able to do the calculations and advised which would end up costing me less overall based on my specific circumstances. You could always give them a ring and see what they think. They might be able to find you a deal that will save you more than the ERC... 0808 292 0447
    Mortgage: Mar 2018 -£300,000 / Feb 2019 -£278,500 (LTV 74.26%)
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  • hiddenshadowhiddenshadow Forumite
    2.5K Posts
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    I think it depends on a few factors.

    1. what is the ERC based on? Ours (2%) is based on the balance at the time of mortgage fix starting, irrelevant of current balance. So if we paid ours it would be ~£3,500 no matter how low our current mortgage balance is.

    2. what do you want to switch to? 2 year fix? 5 year fix? Will this be your last fix or will you need more?

    At 52% LTV you should qualify for almost all of the best rates (I think there are some for <= 40% LTV but most are <= 60% so you're good there).

    You can run the numbers for almost any scenario.

    Say you decide to swap now for a 2 year fix at 1.64%. I'll assume (for easy maths) that your ERC is based on a mortgage balance of 80k (so at 2% it's £1,600 or 1% it's £800).

    Switch now:
    ERC of £1,600
    1 year of interest at 3.28% is £224.68, so 18 months is £337.02 (not really, as your payments will lower the interest paid, but for back-of-napkin numbers..)
    1 year of interest at 1.64% is £112.34, so 18 months is £168.51.

    You'd save £168.51 in interest over the 18 months but pay £1,600, so that doesn't make much sense.

    Switch in July:
    ERC of £800
    1 year of interest at 3.28% is £224.68
    1 year of interest at 1.64% is £112.34

    You'd save £112.34 in interest over the year but pay £800, so that doesn't make much sense.


    Obviously those are rough numbers, and it depends on whether (and how much) you're overpaying your mortgage. With a balance that low, you're not paying much interest annually anyway, so I don't think there's a reason to switch before July given the extra £800 it would cost to do so. In July you'd need to re-evaluate based on whatever rates are then to see if it's worth the money to switch. It depends entirely on what kind of switch you want, what payments (and overpayments) you might want to make, how quickly you want the mortgage paid off, etc.

    Hope that helps, happy to clarify any of the maths if need be!
  • I will check if it is the ERC on amount when taken out or amount when swapping.

    I was looking at at 5 year fix at 1.99%

    I understand the maths on the ERC but won't the interest savings I make on the remaining balance over the next 5 years make it viable to swap?

    Thanks again

    Steve
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