help with decision / maths

littleblue735

Hi
Any advice, maths is not my strong point!

Current mortgage - owe £57k paying £394 at 2.44%, term left is 15 years and tied into fixed rate deal for another 18 months so will pay £1,150 ERC to close this mortgage. House is worth £140k and I overpay £100 per month also.

I want to borrow £20k for home improvements but Nationwide has a minimum of £25k for additional borrowing. Loans are far too expensive.
If I went for a new deal borrowing £77k, looking online I could get a new deal fixed rate 5yr at 1.99% for 5 years for the same payments I am making i.e £500 per month.
But obviously I would have to pay the ERC of £1,150.

Would I recoup this payment back over the years of the new mortgage? I don’t really want to borrow the extra £5k although it would be the easier option I guess although I would still have to go through the 3 hour interview they said.

Thanks!

foxy-stoat

Borrow the extra £5,000, you save £1150 straight away, and make a few over payments - would be the obvious choice.

SouthLondonUser

Without knowing much else about your situation, yes, I, too, would suggest you to consider borrowing the extra £5k.

How much would Nationwide charge you for the £25k extra borrowing? Would you be re-fixing the rate? if so, for how long? Would they charge you any fixed fee, legal fee, whatever-fee etc?

Let's run some numbers in a spreadsheet.

• Based on what you said, you'd pay circa £2k in interest over the next 18 months.
• If you borrow £77k at 1.99%, and don't make any extra payments, over 18 months you'd pay £ 2,705 in interest + £ 1,150 of ERC, i.e. £3,855. Actually, in reality you'd pay more as you'd need to add some legal/underwriting fee.
• If you borrow £25k more from Nationwide, at the same 2.44% rate, without overpayments, your monthly instalment becomes £568, and you pay £2,875 of interest over 18 months - i.e. about one grand less than by changing lender

Why am I looking only at the interest? Because that is the cost of the mortgage; the principal you pay on a mortgage is cash out of the door, but is not a cost, in the sense that it is money you are repaying to yourself.

getmore4less

If you borrow 25k you can overpay 5k as soon as you get the money.

What rate will nationwide give you for the 25k