Ditch My fix for 10 year 2.49%

Ferg_85

Hi,

I'm currently ine the process of puchasing a new house taking on a bigger mortgage and due to the likely hood of rate rises in the future are considering breaking my current mortgage deal and inccurring the ERC details below:

Current Situation

Current mortage - £170k
Rate 2.79% fixed until Aug 19 (29 month remaining of the 5 year deal)
Monthly payment approx £1,050
Term Remaining apprx 17 years
ERC: £5129 + £150 exit fee

Looking to increase oveall borrowing to £390k (additonal £220k) and have been offerred from my exisiting lender to be able to reset the whole term to 30 years no ERC payable @ 1.41% fixed until Aug 19.

This is a really good deal but it only covers me for the short term in which period interst rates are likely to rise.

I am considering breaking my existing deal, paying the ERC and taking on a 10 year fixed with coventry building society @ 2.49%. Knowing costs are fixed for the next 10 years suits our needs at this time and the deal is portable. I'm also comfortable with the ERC applicable to the CBS deal.

I've forecast that if stay on the 2 year deal and remortgage at the end for 5 years and then again at the end of this for 5 years I'd be approx £13k better off over the life of the 10 year deal paying the ERC to my exisiting lender.

my assuptions are as below:
Remortgage Fee each time £1k
Fixed rate of 2.99% in 2019
Fixed rate of 4.99 in 2024

I'll also be looking to over pay £6k per annum off my mortgage.

I'd just like to sense check my thought process and check my forecast for 1 is fair and that its reasonable.

thanks Ferg_85

dimbo61

Crystal Ball Time!

" in which period interst rates are likely to rise "

Bank of England Base rate went to 0.5% on Thursday the 5th March 2009 and DROPPED to 0.25% in August 2016.

That is a Very Good deal with No ERC,s and 1.41% fixed for over 2 years.
Overpay the mortgage by every penny you can for next 2 years and 5 months and see where you are then.
ERC £5129 + £150 + survey fees, legals, searches

Not sure if changing lenders would ADD UP !

amnblog

Well you get to pay about £13,000 extra in the first two years whilst you wait to find out if your gamble pays off.


That would be my concern.

getmore4less

add erc(£5279) and work out a payment over 30years

£395,279 @ 2.49% 30y is £1,551.57

overpay £500pm so the total is say £2052pm.

other option is £390k @ 1.41%

first milestone is Aug 29 29 months.

£395,279 @ 2.49% £2052pm £358,124
£390,000 @ 1.41% £2052pm £343,013 (£15k ahead)

next milestone is another 5 years Aug 24 with a £1k fee

£395,279 @ 2.49% £2052pm £273,907
£344,013 @ 2.99% £2052pm £266,790. (£7k ahead)

next milestone end of 10y fix March 2017 31 months and another £1k fee
£395,279 @ 2.49% £2052pm £226,185
£267,790 @ 4.99% £2052pm £236,809


now this will be approx as it is based on the standard amortization but I recon with your estimates of rates you will be nearly £10k-£11k worse off not taking the 10y fix

less pessimistic on the rate rise in the next 29months
so first 5y fix is
£395,279 @ 2.49% £2052pm £273,907
£344,013 @ 2.49% £2052pm £258,605. (£15k ahead)
second
£395,279 @ 2.49% £2052pm £226,185
£258,605 @ 3.99% £2052pm £219,745 (6.5k)
£258,605 @ 4.49% £2052pm £223,032 (3k)
£258,605 @ 4.99% £2052pm £226,363 (breakeven)

small swings in rate can change the answer quite a bit.

dimbo61

Having had a 5 year fix which was OFFSET I like many others was a little surprised when the BOE rate dropped to 0.5% in March 2009.
If you think a 5 year deal is a long time well 10 Years will seem a whole lot longer.
Will you need to move home in the next TEN years ?
Will you change jobs ?
Have kids or watch them leave home ?
Is this your forever house ?

getmore4less

oh one other thing as you plan to overpay you don't NEED to fix,

Worst case if rates went up a lot from the day you changed £2052 can support in 29 months time a rate of 5.64%

Ferg_85

Thanks all for the individual views - having thought about this a little bit more & seeing as there is a bit more optimisim in terms of future rates might stick to the 1.41 offer and over pay the £500 each month / although it'll probably be a one off £6k capital payment each year to allow me to assess savings etc.

Added bonus is it's 50% LTV so the best rates should be on offer in the future.

getmore4less

if you can get a better rate saving just keep saving.

getmore4less

another test is the 10y rate after 29months(erc free) that would put you in the same position if you had taken the 10y rate paying the erc.
(will try to remember to do that when back at my PC)

Ferg_85

@ getmore4less is there any way to share an excel file on the forum? I'd like to post the forecast in detail if possible for you to review.

getmore4less

If you use the milestones you can just check your calculations with a normal mortgage calculator

a 29month followed by a 10y

29 month
£395,279 @ 2.49% £2052pm £358,124
£390,000 @ 1.41% £2052pm £343,013 (£15k ahead)

10 year or +91months of another 10y fix with £1k fee

£395,279 @ 2.49% £2052pm £226,185
£344,013 @ 3.15% £2052pm £226,087

so a rate rise of 0.66% and about even

using a CBS 5y rate your first guess was a rise of 2.14%-2.99% 0.85%


you might want to have another look at the CBS rate and work with the fee versions as well.
https://www.coventrybuildingsociety.co.uk/consumer/mortgages/remortgage/mortgage-rates.html
i see 10y rates as 2.39%(£999 fee) and 2.69%