Should i switch deal

decsdad

Hi all,
I need a bit of advice as to switching to a new deal.
I'm currently 4 years into a 10 year fix on a 15 year term(so 11 years left).
As per Jan 2018 statement we owe £140k
Min payment is 1287
Paying 2k
So must owe around 130k now.
Rate is 3.89 till 29/2/2024
Penalty is 6% decrease by 1 each year(so was 10% at start, 6 years left on fix)
We would like to clear the mortgage in 4 years, plan to move house, so think a 5 year fix and structure our overpayments so the penalty fee is minimal at the point of clearing it, if we take it over 5 years and overpay our 10% of balance ?
Value 290k
Can anyone please advise if i should switch to a 5 year fix, there's a few around about 2.29% that i have seen, even 1 with YBS our lender.

Many many thanks for any info

middleclassbutpoor

I don't think you should...

I'm no maths expert but if you were to pay the 6% on £130k - you are paying £7800 to get out of your current 10 year deal.

Assuming you pay for this out of your pocket rather than add it on to your debt.

By moving to the lower rate of 2.29%, you will reduce your payment from 1287 to 1115 approx so saving 172 per month and for you t recoup your £7800, it would take a little over 45 months to recoup so the benefit would be minimal on that alone.

Add in that you are talking about moving 4 years into a 5 year fix, you will likely have a further penalty to pay at that point.

Your penalty on your current deal will be at 2% and you are overpaying this would be on a lower balance.

Overall there may be a small saving to be had by changing but if you are adding penalties to your debts, adding in product fees and including legals/valuations etc, these savings may be wiped out.

I would focus on overpaying, probably applying to port the mortgage if you decide to move.

getmore4less

on interest only to recover a 6% penalty on a 1.6% rate difference is 3y4month(40months)

on repayment you don't save that it's less

Trying to be more accurate as you make a 2k payment.

£140k in Jan 2018, 7 month later £129k

Taking £129,000 adding the ERC(6%) and paying £2kpm over 5 years

£129,000 3.89% £24,418
£136,740 2.29% £26,300

you would still be £1,882k behind at Y5.

to clear in 4 you need a payment of £2906

£129,000 3.89% £18.28
£136,740 2.29% £3,913

now getting closer to £4k behind but this is before any ERC on the overpayments.

bigger payments means a higher rate save more interest so you can on interest only start ahead with a switch but as you pay more that saving gets smaller till it is no longer saving anything.

eg. on interest only(ish) and 5 years there is a saving
£129,000 3.89% £419pm £128,946
£136,740 2.29% £419pm £126,703

around a normal 11y term payment you break even(any more you are behind)

£129,000 3.89% £1290pm £71,360
£136,740 2.29% £1290pm £71,389

looks like you still have over payment headroom on your current deal so you need to run that through

if the plan is to cash this in at Y4 then if you reduce the term to give bigger payments the switch may work.

when you move will you need a new mortgage? if you do you need to look at the numbers with no exit ERC and porting.


One issue you will have is £2k payments will get into ERC range within the 5 years, same will apply to a new deal as you overpay the 10%

This will need a much more detailed cash flow analysis on both options without knowing your max cash flow and other options like reducing the term on the existing deal to increase payments I can't do that here.

you also have to factor the date the ERC goes down to 5% if that is jan/feb that's 6 months so you pay 1% less but only paying 1.6% more for 1/2 a year.


One other thing is lenders may not be happy with your affordability for £137k over 5 year term

decsdad

Thanks guys. Really useful, I think given the variables I!!!8217;m best staying and increasing overpayments to fully use 10% allowed.