Early Repayment to get Lower Rate - Better Off?

RedSky1974

Hi

I'm currently weighing up my options and would appreciate some advice, mainly to see if my calculations are correct.


Current mortgage

- I took out a 5 year fix several years ago, 90%, 4.59% interest rate.

My current outstanding balance is £100,380. My monthly payments are £540, but I repay by £100 so I pay £640 per month

This fixed deal ends 26/11/2019


Early repayment charge

If I want to get out of this fixed rate, I need to pay 2,115.00


Thoughts


So let's say I have 2 years left (as that is what I would want to fix as if I change mortgage products)

At current rate - my mortgage will be down to £93,012 - which is a total cost of £7368


Looking at current first direct mortgage products available now, if I was to wait for 2-3 months until I am down to 85% LTV:

(I would be looking at spending around £540 a month, as the £100 I overpay would equate to £2400 over 2 years, which effectively pays for the £2115, so it doesn't leave me out of pocket so to speak.)


- Mortgage amount would be £99,380

- 2 year fix, 85% LTV, 18 year term, 1.94% for 2 years -monthly payments would be £545

- Over the 2 year fix, my mortgage would be down to 89,551.93



Comparison

So, with the above 2 year fix, I would be down to 89,551.93 in two years time.

With my current fixed rate, I would be 92,190.77

Which means I will be paying an extra of 2638.84 off my mortgage, at £545 a month rather than £640 a month.

There is the £2115 early repayment charge, but as I will only be paying £545 a month rather than £640, over the 2 years, the £100 a month saving will effectively pay off the charge..







Conclusion

How does that sound? Have I missed something out?

The figures have come from plugging in the interest rates and dates to a calculator

Makes me feel sick looking at my fixed rate compared to what's available now.



Any advice greatly appreciated. Thanks in advance

AnotherJoe

How do you know what your LTV will be in 2-3 months? What valuation are you using for that?

RedSky1974

AnotherJoe wrote: »

How do you know what your LTV will be in 2-3 months? What valuation are you using for that?

Currently paying £640 interest rate 4.59, outstanding 100,380

So I've plugged into the calculator a start date of 1st March 2017, end date 1st May 2017, to see what the outstanding balance is at the end of that 3 month period, which is 99,238.30 - when I input 99300 on the mortgage section of FD - it says £85% LTV (house bought for 117000).


I appreciate I may well be completely wrong and off the mark, so please let me know if I am - I'm not an expert by any stretch of the imagination, just plugging numbers into a calculator

AnotherJoe

If you are using the value of your house when you bought it, might you not be at better than 85% now? Surely the house has risen in value in 5 years?

re the mortgage there is a rate switch calculator in here, you put the figures in it tells you what your breakeven rate is, but your rate is so high I can imagine almost any deal would save you a lot of money.

RedSky1974

AnotherJoe wrote: »

If you are using the value of your house when you bought it, might you not be at better than 85% now? Surely the house has risen in value in 5 years?

re the mortgage there is a rate switch calculator in here, you pus the figures in it tells you what your breakeven rate is, but its so high I can imagine almost any deal would save you a lot of money.

Good point

So before I sign up to a new mortgage deal, do I need to get the house valued?

What is the process for this?

Thanks

getmore4less

Don't over complicate the simple eay is add the fees pay the same see what't left.

in 3 months/85% and after 2years

£99,300 @ 4.59%. £640 per month £92,773

ECR 2,115.00

£101,415 @ 1.94% £640pm £89,775


save £3k


you may already be close to 85% might be worth starting now and making an adjustment if you have some cash lying around.
every month earlier you start you save £200.

Thrugelmir

Make allowance for the cost of remortgaging. Exit fees, legal fees, valuation fees.

AnotherJoe

crouchmagic wrote: »

Good point

So before I sign up to a new mortgage deal, do I need to get the house valued?

What is the process for this?

Thanks

It depends.
New lender, the lender will arrange (and you'll pay).
Current lender, they may do a valuation of they may just take the % rise in house prices in your area an uplift your house by that without bothering to visit.

RedSky1974

Thanks for the replies all - much appreciated. I'll speak to them next week and try and get things sorted

AnotherJoe wrote: »

It depends.
New lender, the lender will arrange (and you'll pay).
Current lender, they may do a valuation of they may just take the % rise in house prices in your area an uplift your house by that without bothering to visit.

Thanks - Ill give them a ring and see what the process is

Thrugelmir wrote: »

Make allowance for the cost of remortgaging. Exit fees, legal fees, valuation fees.

I think I'll be staying with my current lender FD purely for this reason - there shouldn't be any other costs bar the early repayment

getmore4less wrote: »

Don't over complicate the simple eay is add the fees pay the same see what't left.

in 3 months/85% and after 2years

£99,300 @ 4.59%. £640 per month £92,773

ECR 2,115.00

£101,415 @ 1.94% £640pm £89,775


save £3k


you may already be close to 85% might be worth starting now and making an adjustment if you have some cash lying around.
every month earlier you start you save £200.

I certainly over complicated it :rotfl:Thanks

RedSky1974

Hi all


Another quick query - any help appreciated.


Spoke with First Direct today and have changed to a 1.94% rate, which will be monthly payments of about £390.

Now - my current term has 27 years remaining.


I asked if I could change my mortgage to a lower term so that the payments are around the £500 mark. However the adviser said that I would need to book in with a mortgage adviser, and go through the whole application and affordability assessment again - that's more effort and questionnaires etc.


So my query is this:

Two options:

- Stay on 27 year term. Overpay every month to make the payment around £550

- Book in with an adviser and change to about an 18 year term so the payment is automatically around £550 a month.



Would there be a difference on the outstanding balance at the end of my two year fixed period with the above options?

At the moment it's easier to just set up the over payment; but if there'll be a big difference I'll book in with an adviser and go through everything.


Thanks

RedSky1974

Just doing some quick googling

"Overpaying and shortening the mortgage term do exactly the same thing. Yet overpaying has the advantage that you can stop it if you want or need to. "


Probably best to just stick with the overpaying then