ERC vs Porting

swan1981

I am currently selling my home for £230k . My Mortgage with Nationwide is £124k I am 4 year into a 10 year fixed which means I would get hit with a £7500 ERC if I did not port my mortgage.

I am trying to weigh up what is financially best. I intend to buy another home between £100k to £140k and hopefully be mortgage free. I know if I go for the £140k range I will have the option to port my mortgage and over pay the maximum for another 6 years then pay it off once the fixed term has ended. When I try to calculate which option is best it seems I would be better off just paying the £7.5k ERC as the extra interest I would pay by over the next 6 years is substantially more. I know there is the option of investing the equity but anything with a high return is too risky in the short term.

Not much on the interweb regarding this so would be interested to hear other views.

getmore4less

What rate do you have on the 10y fix?

What % is the ERC(looks like 6%)?

have you used up your max ERC free overpayment.

Does the ERC drop over time
ie. what % now and when would the next drop be.

I think cuurent 10y NW start at 7% and drop Y5 to 6% then 1% a year down to 1%

What will it cost to port?


Will Nationwide let you port the rate to a lower LTV.(<60% to over 85%)
their current 10y rate <60% LTV is 2.79% for over 85% 3.99%

sirich99

I am currently moving property and weighing up my options. We need to borrow £195k and have and existing mortgage of £113k on a 5 year fixed @ 2.98% (2years left in term)


I have met with my Natwest mortgage adviser today and discussed the options.


We have decided to port the existing mortgage and take out an additional mortgage for £82k on a 2 year fixed at 1.6% (£995 product fee added).


At the beginning of the meeting we discussed paying off the existing mortgage and i was advised the ERC was circa 3.5k. The advice was this would not be cost effective.


After moving on, when discussing the product fee we were also told this would not be cost effective over the term of the mortgage (both 35 years btw) but in the short term we paying £50 per month less by accessing the lower rate so I chose this.


Looking back and having come back and checked figures - I think we were advised correctly over the term it would not be cost effective to add the ERC to a new mortgage but in the short term by accessing the fixed rate of 1.6% for a mortgage of £199500 (£195000 + ERC and Product Fee) our monthly payment would be £621 rather than the £691 we have put forward on our proposal.


Nothing is submitted yet - so any advice is greatly appreciated.

swan1981

My rate is 3.29%. When I work out how much interest we pay over next 6 years it massively exceeds the £7500 erc unless I am missing something. SiRich I would not take the word of a sales advisor. As your situation is different to mine with lower ERC etc its probably close in terms of what to do so maybe in this instance they are right about porting.

I dont know your situation but really think twice about increasing your home and mortgage. It will make you a slave to your job forever. I did what you did 4 years ago now we are downsizinig to be mortgage free. Its still going to be a nice house. Nothing tastes better than mortgage free. Most people keep up with the Jones...I am running in the opposite direction. Mortgage free debt free at 40 and retired at 50 with a little help from index funds and good decisions. FIRE COMMUNITY !

getmore4less

You don't just look at the interest over the term now you look at the Interest costs over time and as the ERC changes.

if the ERC drops 1% and you can hit 2 10% overpayments before that what would the ERC cost look like then against the interest paid during the period and interest gained on the rest.

getmore4less

sirich99 wrote: »

I am currently moving property and weighing up my options. We need to borrow £195k and have and existing mortgage of £113k on a 5 year fixed @ 2.98% (2years left in term)


I have met with my Natwest mortgage adviser today and discussed the options.


We have decided to port the existing mortgage and take out an additional mortgage for £82k on a 2 year fixed at 1.6% (£995 product fee added).


At the beginning of the meeting we discussed paying off the existing mortgage and i was advised the ERC was circa 3.5k. The advice was this would not be cost effective.


After moving on, when discussing the product fee we were also told this would not be cost effective over the term of the mortgage (both 35 years btw) but in the short term we paying £50 per month less by accessing the lower rate so I chose this.


Looking back and having come back and checked figures - I think we were advised correctly over the term it would not be cost effective to add the ERC to a new mortgage but in the short term by accessing the fixed rate of 1.6% for a mortgage of £199500 (£195000 + ERC and Product Fee) our monthly payment would be £621 rather than the £691 we have put forward on our proposal.


Nothing is submitted yet - so any advice is greatly appreciated.

I would start with the rate for the additional funds without a product fee.

you may need to do this to the exact month as product are often not exactly 2 years

The key point is you can use the payment to compare a mortgage you need to look at costs and cashflow.


If you can get the lot on 1.6% then the starting simple calculation
is the rate difference on the loan (2.98%-1.6%)*£113k*2 = £3118.80 that means you can't recover the ERC over 2 year on interest only you are £400 short.
Repayment as you save even less so not realy worth checking further but lets do it anyway.

more detail you are proposing for 2 years over 35y

£113,000 2.98% £434pm £109,212 interest £6,628
£82,995 1.6% £258pm £79,404 interest £2,601
£195,995 ---- £692pm £188,616 interest £9229

ditch the fix and add the ERC.
£199495 1.6% £621pm £190,843 interest £6,252

make the payment the same
£199495 1.6% £692pm £189,113 interest £6,226

For the same cash flow you would end up about £500 worse off ditching the fix.


What you probably should look at doing if not done already is max out your overpayments on the fix and borrow a bit more on the top up.
You only need the money for a few days but if 10% could get upto an extra £11k onto the 1.6% rate for no fee or a tiny bit of interest.