Pay ERC or hope for no rate rises before June 2018?

sh1202

Hi there

I am approximately 15 months into a 24 month fixed rate mortgage with Nationwide. Current interest rate is 1.99% with a remaining balance of £320K. If I end the current deal before June 2018 then I will pay a 1% ERC.

I will be looking to remortgage and expect to take a five-year fix as soon as my current deal ends.

My calculations show a cost of £3.2K to end current deal early, vs. a potential cost of £7.5K (over five years) if I was to do nothing now and remortgaged in June 2018 but at that time five year fixed mortgage rates had increased by 0.5%.

With recent hints of potential rate rises in the near future, do you think that it would be worth paying the ERC now and fixing before any rate rises? Or cross my fingers and hope that there are no rate rises between now and when I reserve my next mortgage?

Finally, I have read somewhere that you can reserve a rate with First Direct six months before taking the mortgage. I can't find this on FD's website - does anyone know if this is correct and, if so, whether any other mortgage providers offer a similar facility to reserve a rate in advance?

Thanks

Stephan

sh1202

I suppose I also have to take into account that every two years I will be paying off approximately 5% of the value of the house so going down a tier in the LTV rates (will be remortgaging at 80% LTV).

plush_2

You also have to factor in other costs if you're planning to remortgage - legal, valuation, product fees etc. I'm in the same boat, except my ERC would be 2%. No brainer for me, I will wait until next year.

sh1202

Good point, although I know that I will be remortgaging in either scenario as my SVR would be like 4% or something, so these remortgage costs will likely be the same either way.

Thrugelmir

If you've got £3,200 sloshing around. Then use the money to reduce your existing mortgage debt now.

sh1202

Thanks but what is the basis of that advice?

dunstonh

sh1202 wrote: »

Thanks but what is the basis of that advice?

This site is not authorised to give advice. Anything you read here is opinion and discussion. Not advice. You will see good opinions and bad opinions.

Paying an ERC with 9 months to go seems a bit daft. The expectation is that we will probably see a 0.25% increase in that period. Chickenfeed. Plus, that expectation is already factored into current mortgage deals.

The economy is borderline on being able to withstand a 0.25% increase. It is not going to jump up by large amounts.

sh1202

Thanks very much. It does seem a bit daft so will give it a miss.

Anyone know about reserving mortgage rates in advance and who offers that facility/how long in advance they can be reserved?

sh1202

0.25% increase would be break even anyway

Boredatwrork

sh1202 wrote: »

Thanks very much. It does seem a bit daft so will give it a miss.

Anyone know about reserving mortgage rates in advance and who offers that facility/how long in advance they can be reserved?

Many allow you to do it 3 months ahead, but Ive also had it 6 months ahead, depending on the lender. Phone your lender and ask.

Thrugelmir

sh1202 wrote: »

Thanks but what is the basis of that advice?

Ultimately the amount you owe determines the amount of interest you'll pay. This you can influence. While interest rate levels are only something that be addressed at the time that a product switch is possible.