Remortgage calculations

WorldCitizen

In April 2016 we have locked into 5 year fixed deal at 3.39% rate. I think we’ve done this mistakenly. We should choose 2 year deal as I see next year we could have a 60% LTV (with the help of overpayments), so it is possible to get better deals with the new LTV band.
Our current deal runs out in July 2021.
Mortgage details at the moment:
Property value 100,000
65,385 @ 3.39 = 351.60 pm + 398.40 OP = 750 pm payment
Nationwide website shows deals (no fee):
2 y. fixed @ 1.69%
5 y. fixed @ 1.99%
10 y. fixed @ 2.59%
Also they offer £500 cashback and free valuation.
Our RBS ERC after April 2018 will be 3% on the amount of 60K as we are planning to overpay and get LTV 60%. So ERC = 1,800
And here I am stuck. Can you help with the calculations, is it worth to change the deal before the current one ends? And also which of the fixed offers to chose – 2-5-10 years?
Thanks.

getmore4less

workout what you owe at dates(start with 2 years and 3 years) paying £750pm
£60,000 @ 3.39%
add the net fee
£61,300 @ 1.69%
...

enjoyyourshoes

Are you planning to 'potentially' remortgage in April 2018 ?

There may be changes to the mortgage deals then, so its seems prosaic to do the maths.

Why not do the comparison based on remortgaging now? Then its a true comparison and if the deal looks a good one you can change. If to looks bad, then we can change the numbers as if it were April 2018 ?

Whats the etc now and what is the value of the mortgage now? (£65,385)

getmore4less

If you the calculation now you need the April data point first as it needs to pay back the extra ERC by then then factor in a guess for rates in April.

If the ERC is 1% more then the max saving in 4month is 1.7%/3 which won't cover it.

WorldCitizen

thanks for your answers.
yes I am thinking about April/May because of ERC, at the moment it's 4%, and from April will be 3%

WorldCitizen

I know that mortgage deals can be different in April.
I just want to understand if I should change the deal at all or just stick with regular overpayments and forget about it.
I am tempted to change the deal for a long period 5 or even 10 years and pay it off in 10 years, so never change deals anymore. Especially that I will have 60% LTV.

WorldCitizen

Can I ask if someone knows?
How usually people pay ERC? Do they make a lump payment?
I will make my math a bit later here to ask you if I am correct with my thoughts.
Thanks.

Malc00

If you are sticking with your current lender, ERC's are typically required to be paid up front with own funds.
If you remortgage you can add the ERC to the loan but you would incur interest on the extra money you borrow for it.

getmore4less

it make small difference if you pay up front or not for the comparison calculations.

getmore4less

Property value 100,000
65,385 @ 3.39 = 351.60 pm + 398.40 OP = 750 pm payment

£65,385 @ 3.39% paying £750pm.
use 4 payments till April then each 12m for the 3 years left.
April 18 £63,114
April 19 £56,146
April 20 £48,938.
April 21 £41,482

full term 101 months or April 2026 8 years 4 month + £170(May payment)

you say you can get the debt down to £60k by April you need to find another £3k overpayment.

if you pay £3,079 now you get to
£62,306 @ 3.39% paying £750pm
April 18 £60,000
April 19 £52,925
April 20 £45,606
April 21 £38,035

Full term 95 months Nov 2025

Take the £500 cashback of all ERC
lets start with the 4% ERC now, £1992 and see what,s left in April.

£64,294 @ 1.69% £61,651
add the 3% ERC on £60k £1,300 to compare £61,300

£350 down switching now so it then becomes calculations based on what rates might be in April.
.... can do those if we want later.

back to the lets change in April 18 with £60k and 3 years left.

current deal and amount in each of the next 3y
@ 3.39% paying £750pm
April 18 £60,000
April 19 £52,925
April 20 £45,606
April 21 £38,035

add erc and see what's left for each deal @ 1y,2y,3y

£61300 @ 1.69% £53,274 £45,112 £36,810(only if you get the same rate @ Y2)
£61300 @ 1.99% £53,449 £45,440 £37,270
£61300 @ 2.59% £53,799 £46,102 £38,202

on the 2y and 5y you get ahead 10y you get behind.

Next calculation is a 2y+2Y to see what rate you could go up to at Y2 switch and be no worse off.

(hint it is not the current differences because the overpayments on the lower rate reduce the debt, with a smaller debt you can take a higher rate on the follow on without being worse off.)