Difficult early remortgage decision!

Macaque

Good evening all,

First time poster, long term lurker and looking for some advice regarding re-mortgaging early.

We currently have 1 year & 9 months remaining on our introductory deal (31 years & 9 months total), meaning we would have to pay an ERC which would be added to the mortgage total.

Property Value = ~£275k
Remaining Mortgage = £223k (£969pm)
ERC = £4.6k
Interest Rate 3.49%

With our current LTV, we would be able to get a new 5 year fixed at 2.05% and a £999 product fee. This would leave us with a saving of circa £120 pm. We would also look to re-mortgage on a 30 year deal.

£120 x 21(months) = £2,520
ERC + Product Fee = £5,599
£2,520 - £5,599 = -£3,079

On the face of it, this obviously seems like a bad deal, however there are several other factors which are influencing our decision.

- My wife is pregnant, due Dec, and therefore her income which decrease substantially. The £140 pm saving could help reduce financial pressure that may arise. (potential to overpay the £120 saving)
- When our current deal ends, it is likely my wife will still be working part-time, which could cause difficulty with affordability checks?
- Uncertainty with Brexit (the eternal conundrum). Whilst rates are just as likely to decrease as they are increase, is there merit to locking in an interest rate at 2.05% now whilst we can get it? Likewise, house prices may decrease and take us into a different LTV bracket = worse mortgage rate.

Should we re-mortgage and have the safety net of a fairly good deal for the next 5 years, which are going to be quite an unstable period for both us and the economy. Alternatively, let the deal run its course and hope none of the factors above have too much of an impact when we remortgage in Apr 21.

I appreciate any help!

Macaque

Bump. Any advice massively appreciated!

sal_III

Your own math shows that there will be no "extra" £120/m savings, you will blow them in advance on ERC/Product fee.

It will take you over 3 years to recoup the ERC,

What is on offer from your current lender at the end of the fix? In many cases re-mortgage with the same lender doesn't trigger affordability/income checks. Nevertheless you should inform them in your change of circumstance as it's likely a condition of your current mortgage.

penners324

You are forgetting the interest charge on the ERC over 30 years if you add it to the mortgage.

To me it doesn't sound a good plan at all.

[Deleted User]

I can see why you want to do something like that as it will given you an extra amount in your pocket and the ERC stuck on the mortgage is just another big number on top of an already massive number.

However, it isnt great advice to do this and my network would rip me apart if i did a case like this. Youd just be shooting yourself in the foot in the long run

What about extending the term on the mortgage to release some cashflow? The mortgage term is seperate to the product term so you can change it without invoking the erc.


If your wife is working part time in the future then it may make remortgaging hard. What lender are you with at the moment? Some offer better retention deals than others so staying with them can be fine whereas some penalise existing customers and staying with them will be annoying.

dimbo61

The devil is in the detail.
No indication of who your current lender is ?
£4,600 + £999 product fee OUCH !
If you have a spare £1,000 then overpay your current deal.
If your borrowing £5,599 then don't forget all the compound interest you will pay over the next 30 years.
Save if you can over the next few months and buy the items you need for your lovely pregnant wife and new baby.
Check out closer to remortgage time what deals your lender has for existing customers.
Then start to shop around or talk to a mortgage broker.

Macaque

I am currently with Nationwide, not sure what they are like with retention deals? Also the affordability checks for existing customers?

Ideally I would like to lock in a price as close as possible to the deal ending, do you know how far in advance this can usually be done?

Macaque

Thrugelmir

Is the new deal you've found fee free? There's exit fees, valuation fees and legal fees to be added to the equation. Remortgaging isn't a cost free exercise.

SouthLondonUser

Yet another thread where no one brings up the difference between the cash outgoing and the real cost of a mortgage. The real cost of a mortgage is the combination of interest and fees; the capital that you repay is not a cost because that's money you are repaying to yourself. Eg if a mortgage has a monthly instalment which is £100 lower than another, yes, you have £100 more available every month, but this doesn't mean you are "saving" £100 - this other mortgage may well cost you way more in additional interest.

Over the next 21 months at 3.49%, you will pay ca. £13,400 of interest.
If you take out the new mortgage at 2.05%, over the same 21 months you will pay ca. £7,800 of interest. But, once you add ERC and product fee, the cost is almost identical. Once you add legal fees etc, the cost of the new mortgage becomes higher.

So, if you are comparing the costs, it's not worth it unless your crystal ball tells you that interest rates will be much higher in 21 months, or unless you are absolutely convinced you will struggle to refinance in 21 months (eg because of your wife's work situation).

In terms of budgeting, having £120 more per month isn't better than not having to pay the ERC, product fee, legal fee etc, which I presume will have to come from your savings.

getmore4less

Looking over the 5 year period of the switch might help.

This is just with the £5,599 fees you need to check the total costs if you change lender.

left after 1y 9m (leave term at 31y9m)
£223,000 3.49% £969 £216,070 interest £13,420
£228,599 2.05% £817 £219,493 interest £8,046
£228,599 2.05% £969 £216,240 interest £7,991


£152pm difference but if you had paid the same the extra cost switching would be around £170.

As suggested what if you just increased the full term on the current deal to reduce the payment to around £817
That needs a term of 45y 4m nationwide max is 40y(£863pm)

£223,000 3.49% £817 £219,358 interest £13,515

At the end of the 1y 9m you would be around £135 better off than the switch.

There is not a lot in either option but if you switch you are fixed for another 3y 3m at 2.05%.

If you let the current deal run what might Nationwide have for the LTV now at around 80%

The current deals no fee/£999 fee (fee deals work out better)
2y 2.04%/1.64%
3y 2.29%/1.99%
5y 2.34%/2.14%

keeping the payment at £817 and comparing to another NW 2y and 3y

Switch
£219,493 2.05% £817 £208,673 £203,095
2y
£220,357 1.64% £817 £207,780
3y
£220,357 1.99% £817 £203,620

Only the fee based 2y deal can better the switch as long as rates don't go up.
if the rates go up one 0.25% in the 1y 9m

£220,357 1.89% £817 £208,872

One rise wipes out any potential saving from running with what you have on a longer term over switching now as long at the total costs are not to much more.

phillw

Macaque wrote: »

Should we re-mortgage and have the safety net of a fairly good deal for the next 5 years, which are going to be quite an unstable period for both us and the economy. Alternatively, let the deal run its course and hope none of the factors above have too much of an impact when we remortgage in Apr 21.

It's not a particularly good deal.

There is no guarantee what will happen to the economy. You may find yourself having to sell up and incur another ERC.

By knowing that you may find it difficult to pass affordability checks in the future and you don't tell them when you're applying then it's fraud.

I got onto a nationwide life time tracker in 2008, they probably asked if my circumstances had changed but I don't actually remember. I can't remember having to show them a payslip either.