Remortgaging: to fee or not to fee? That is the question!

mrsmumbles

Hi all, hope some nice money-saver out there can help.

So I have tried to work it out on the calculator and have read the MSE blogs. Still not sure!

Have a good First Direct offset mortgage we want to hold onto as it allows bigger redraws on the pre agreed sums for another 15 years.

It drops from its current fixed rate of 2.19 to SVR in January, around 4%, so we need to remortgage now. We are mortgage free but keeping the offset facility as we will be doing improvements to the house next Spring and hopefully selling to move to a more expensive isn area within two years (hopefully) and this way can keep our pre arranged lending. It is interest only but historically we have always overpaid and chucked all we can at the debt each month (thanks to all the great tips on this site) We can borrow back up to £145k. We would not need more as would have sale from all the released equity on the sale of the current house and hopefully some more savings to cover interim costs. Next year, as said, we also will build a small extension out the back of current house, so in the short term, we need to borrow back a maximum 75k. Not all of this will be borrowed back from the bank (plan to use current savings if £15 towards it) but I am calculating the two rates they have offered me on a slightly higher figure of £70k to allow for any unpkanned costs, pkus any overspends in building. So:

Borrowing fee free at 2.69% or with a fee of £499 for a lower rate of 2.49%? Both two year fixed periods. Only currently going to need £70k at one of these rates but if we sell the following year, more may need to be drawn back.

I worked out that the difference on 70k at the 2.49 and 2.69 to be only around £140. Suggesting do fee free is best for the borrowing back of 70k. But if we were to borrow more the following year when we may move to a more expensive area, does the 2.49 rate pay for itself? Help!
I wish I had listened in my Maths lessons.

getmore4less

Really simple for regular mortgages

Add the fees make the payment the same that makes the cash flow the same.

see what's left at the end of the fix smaller is better.


With interest only you can estimate using the just the rate difference.
(This will be very close but does not take account of cashflow)

saving = rate*amount*years.

For offsets and drawdown of offset funds you have to run a full cashflow anaylsis.

Borrowing fee free at 2.69% or with a fee of £499 for a lower rate of 2.49%?
......
I worked out that the difference on 70k at the 2.49 and 2.69 to be only around £140. Suggesting do fee free is best for the borrowing back of 70k. But if we were to borrow more the following year when we may move to a more expensive area, does the 2.49 rate pay for itself?

interest only 2 years, amount = £499/(0.002*2) = £124,750

That is the mortgage size that would be break even if borrowed for the full 2years..

As your borrowings will be less than that for most of the time fee free.

even if you went over fort he last few months moerting the rate chances are still better off fee free.

Depending on LTV you may be better off with a lower non offset rate and just drawing down the money now.

porting will require the same checks as a new mortgage so you probably don't need an offset.
60% LTV 2y fix

offset rate
2.49% £490 fee
2.69% £000 fee

regular rate
1.39% £490 fee
1.69% £000 fee

mrsmumbles

Hi again

Tried to follow all your arguments but got a bit lost on some...I think you are saying the fee rate is best value for the 70k loan?

Cannot port. Love the offset system and job has changed so would never be lent this amount again or have it at disposal without the need for a full application all over again. Other half still works but we are wary of setting with a new lender...we have a very good loan to value at present and want to borrow within what has been already allocated to us. Changing the rate is hard enough!

So...are you saying go for the 2.69? ������

getmore4less

If you plan to move and cannot port you need to watch ERC.

New House/borrowing is new application.

I suspect that going to a regular 2y fix would be your cheapest option.

You can match the mortgage rate in savings.

Thrugelmir

mrsmumbles wrote: »

this way can keep our pre arranged lending.

You don't have access to preapproved lending. Your application for any new mortgage will be asssessed against the lenders criteria at the time. If you believe that you would fail on an affordability assessment then unfortunately you will. To move you are going to need to build more equity or increase your savings.

Offsets aren't the cheapest form of mortgage product. Do you have any funds that could be used to improve your LTV, i.e. reduce the offset balance.

getmore4less

From what I read they are currently mortgage free/neutral just looking to borrow back on a new deal to upgrade.

Any move that requires borrowing looks like it may be a problem.

mrsmumbles

getmore4less wrote: »

If you plan to move and cannot port you need to watch ERC.

New House/borrowing is new application.

I suspect that going to a regular 2y fix would be your cheapest option.

You can match the mortgage rate in savings.

So sorry but what is ERC?

We can port, it is just that I think the bank will try to impose tougher rules on us whereas if we borrow back up on the old system, the amount we can borrow is better. Hopefully, after the extension is done and repaid, we can then sell and not need any mortgage to get the dream pad. Or we repay and stay put and keep the allocated lending until we need it. The ltv is good.

mrsmumbles

Thrugelmir wrote: »

You don't have access to preapproved lending. Your application for any new mortgage will be asssessed against the lenders criteria at the time. If you believe that you would fail on an affordability assessment then unfortunately you will. To move you are going to need to build more equity or increase your savings.

Offsets aren't the cheapest form of mortgage product. Do you have any funds that could be used to improve your LTV, i.e. reduce the offset balance.

I do have access to pre approved lending but the fixed rate expires soon so I need to refix that rate. The offset exists for over ten more years for us so the idea is borrow back on it at a lower rate than a loan, which we would never do. Just need to work out the sum!

I think it would take just under the two years to repay the £70k.

getmore4less

ERC early repayment charge.

Porting will be a new affordability checks.

If you have offset facility just take more than you need and offset it

mrsmumbles

Fee free it was!