Advice Please

andrea_stewart

Hi

Me and my ex-husband are separated, both still living in the same house - going on the market, mortgage deal coming to an end. Do we enter into a new deal where early repayment charge is 2% in year 1, 1% in year 2?

Many thanks

glosoli

If your house is going on the market then signing up to a new product probably is not a wise idea.

When do you anticipate the house will be sold?

Lilla_D

Hi Andrea,

You have a few options:
- you enter into a new deal and then when the property is sold, you redeem the mortgage and pay the early repayment charge (ERC);
- you enter into a new deal and then when the property is sold, one of you tries to port the mortgage to a new home you buy in one of your names only with a transfer of equity, assuming that the mortgage is affordable based on one income;
- you enter into a new deal with a transfer of equity, i.e. in one of your names only assuming that it's affordable based on one income and once the property is sold, you port it to a new home you buy;
- you don't enter into a new deal, but revert onto the standard variable rate for a few months, pay the higher monthly payments and when the property is sold, you redeem the mortgage in full without an ERC

Re option 1 - chances are that financially it's not worth it, but you'll have to do the maths
option 2 and 3 - affordability may be an issue and the lender may not allow a transfer of equity while both of you still live in the house or the lender may have restrictions re the porting transaction which will ultimately lead to redeeming the mortgage and paying the ERC anyway
option 4 - easiest and cleanest solution, but I assume that you manage to sell within a few months and the higher monthly payments in the interim don't outweigh the ERC amount you'd have with a new deal, which you'll know once checked the figures as per option 1

Hope it helps

andrea_stewart

Hi glosili

Thanks for your reply. I don't know how long a sale will take but the mortgage will go up to 5.99% if we don't do anything.

andrea_stewart

Hi Lilla D

Many thanks for your reply. The ERC would be on £55k.

There's 2 mortgages with Newcastle. I'm hoping to port the £55k .75% mortgage and reduce that mortgage with equity. Ex could port the new deal if he wanted to which would be for £55k with equity. The deal coming to an end is 2.99%.

Lilla_D

Thank you for the extra info, but I'm afraid I lost you there, so just some questions to clarify the situation:
How much are you hoping to sell for?
You mean you have 2 mortgage parts (e.g. original amount and a further advance) and both of them are £55k?
When does your current deal finish? Is the other part on the SVR (5.99%)?
What is the remaining term of the mortgage?
Is the mortgage affordable based on your income alone and based on your ex's income alone also taking into account any credit commitments, childcare, pension, etc.?

andrea_stewart

Hi Lilla D

£265K
2 mortgage parts £55k each
2.99% ends end of June, other mortgage is .5% above base rate for life of mortgage
.5% has 9 years left
2.99% deal about to end has 16 years left
Yes I think so. I would also be reducing the .5% mortgage with equity. Ex has great income.
Neither have debts, children are adults.

Lilla_D

Ok, so by reverting to the SVR, you'd pay about £111 per month more. This means that unless you don't complete on your sale for 10 months, the ERC would outstrip the savings.

I've never had a case where a (former) couple tried to port two separate mortgage parts to two separate properties, so you'd have to check it with the lender whether they'd be willing to consider it. Well, you might also need to check with them whether your mortgage parts are portable at all, as it's not an automatic feature for all mortgages.

Seeing the 0.75% tracker rate, I can understand why you'd like to keep this deal, so I hope the lender agrees to the porting and the transfer of equity for you. However, if your ex has a good income, then he could potentially get better deals than the 2.02% offered for your product switch, so for him the porting would not make sense, in which case taking the new deal would not make sense either (assuming that you sell within 10 months).

p.s. I assume you'd take the 2.02% deal, which has no arrangement fee

p.s.2 I can't provide advice here, so the above is just for info based on details provided and calculations that can easily made by anyone. Nonetheless, I hope it helps

andrea_stewart

Hi Lilla D

Many thanks for your input.

So we'd be paying £111 per month more on SVR or £1,100 for EVC.

The .5% above base is portable as we ported it from our last house.

Newcastle are offering us a 1.65% no fee deal, don't know if it's portable.

getmore4less

Ok, so by reverting to the SVR, you'd pay about £111 per month more. This means that unless you don't complete on your sale for 10 months, the ERC would outstrip the savings

.

why do so many only use the difference in payment and miss out an important part of the calculations the amount owing?

A very basic feature of mortgage amortization is that lower rates pay off more capital every month than higher rates.

Break even on the ERC is much sooner than 10 months

lets do some numbers....

andrea_stewart wrote: »

Hi Lilla D

£265K
2 mortgage parts £55k each
2.99% ends end of June, other mortgage is .5% above base rate for life of mortgage
.5% has 9 years left
2.99% deal about to end has 16 years left
Yes I think so. I would also be reducing the .5% mortgage with equity. Ex has great income.
Neither have debts, children are adults.

looks like the best deal would be 2y 2.02% no fee £200 cashback(if available to product switch)
summary
£55k @ 0.75% 9y term £527pm
£55k @ 2.99%/5.99%/2.02% 16y term £361pm/£446pm/£336

Erc 2% then 1% on the 2year.


lets say 6month/1year to sell and BEFORE max ERC free overpayments.

in 6 months and up to 1y amount owing and 2% erc

£55k @ 5.99% £446pm £53958/£52,885 £0/£0
£55k @ 2.02% £336pm £53533/£52,052 £1,079/£1041.

Saved on payments 6m £660 1y £1320
smaller debt 6m £425, 1 year £833

net 6 months + £3 paying the ERC.
up to 1year where you save 1112 by switching,, then the ERC drops to 1% so the savings get even bigger.

these are the net positions for selling quicker.
M net amount down with ERC.
3 -£540
4 -£354
5 -£171

don't forget the £200 cash back if available, break even could be 5 months, 6 month worst case

now if we match the payments for the 5.99% assuming that is within the ERC free amounts(can't find that)

and look at the 3,4,5 month numbers
£55k @ 5.99% £446pm £54,483/£54,309/£54,134 £0/£0/£0
£55k @ 2.02% £446pm £53,938/£53,583/£53,227 £1078/£1071/£1064

M net
3 -£523
4 -£345
5 -£157

Regular overpayment for the same amount as not switching improves the numbers a bit.

IF the ERC free is say 10% that's more like £5k if selling the £5k goes on and you get it back shortly after without the regular overpayment the net position becomes

3 -£440
4 -£254
5 -£71

Might be possible to squeeze those a bit.

BY the time the current fix ends you should have an idea of the interest in the property, even then if the cashback is there and with the selling cycle to completion it might be worth the cost for a bit of piece of mind in cash things drag on.

getmore4less

if they are offering a 1.65% deal on the £55k that is even sweeter..

look at the 3,4,5 month numbers again with same payment

£55k @ 5.99% £446pm £54,483/£54,309/£54,134 £0/£0/£0
£55k @ 1.65% £446pm £53,887/£53,515/£53,143 £1078/£1071/£1063
M net
3 -£482
4 -£275
5 -£72

The £5k overpayment option will bring them down further.