Remortgage - Best Date to Change Lender

RelievedSheff

The time has come for us to start thinking about sorting out our remortgage. Shortly after Christmas we will start to look for a new deal.

Due to previous credit problems our current mortgage is with Kensington and is a high rate at 5.19% but we are confident that we can get a mortgage with a high street lender this time around. We have had confirmation from Kensington that there will be no early repayment charges to pay from the 1st May 2021.

With this in mind we will start looking for a mortgage deal at the end of January beginning of February time. 

My question is what is the ideal time of the month to set the completion and mortgage lender switch for?

It obviously needs to be after the 1st May which is when our last payment will be made to Kensington. But are we better off making the switch of lenders towards the beginning, the middle or the end of May?

K_S

@RelievedSheff Hopefully I'm not missing something obvious here but (generally speaking) you would time remortgage completion to day 1 of no-ERC, which appears to be 1st May (or the next working day after that) in your case. Is there any particular reason you would want to delay it to mid/end May?

It's sure going to feel good moving on from a 5%+ rate! Good luck with the remortgage and don't leave it too late so you give enough time for legal work, especially if you choose to use free legals from the lender.

ACG

Rates dont drop/go up on a particular day, they are usually governed by how busy they are and how much they have/need to lend. 

Personally (and this just me guessing because I dont really know), I would say the longer you leave it the more likely rates are to drop. My thinking behind that is everyone is mad busy at the minute. Everyone wants to complete before the end of March due to the stamp duty holiday ending and the HTB scheme changing. 

Over the next 4-6 weeks things will start to slow down because it will get to the point where it is impossible to complete before the end of March and that will mean demand slows and service levels improve. A lender does not want their staff sat around with no work to do, so they will reduce rates to get the business in... Thats my thought process anyway. My mortgage deal ends in May, so I am leaving it until probably Feb before I look at alternatives. 

RelievedSheff

K_S said:

@RelievedSheff Hopefully I'm not missing something obvious here but you would time remortgage completion to day 1 of no-ERC, which appears to be 1st May (or the next working day after that) in your case . Is there any particular reason you would want to delay it to mid/end May?

It's sure going to feel good moving on from a 5%+ rate! Good luck with the remortgage and don't leave it too late so you give enough time for legal work, especially if you choose to use free legals from the lender.

It will be nice to get off that high interest rate, that is for sure!

CSL0183

It doesn’t necessarily need to be 1st May, you could do it now if you like and incur the ERC penalty. As you are in the last few months, your ERC penalty is likely to be peanuts, as in £100 or less. I guess it depends on your current lending but if you phone Kensington and ask them how much your current ERC is on this date and then ask them how much it drops by every day until the 1st May, you will get an idea. 

I would say the likely switch to a much more competitive rate would more than pay the ERC penalty so in my opinion you should be looking into it now. At least to get an idea of what your ERC is, what it will be at end of January/Feb/March etc and then weigh up if you save that back (and more) by switching now and paying the ERC. 

When I done it earlier this year, it worked out better to pay the minimal ERC and get onto the cheaper monthly payments with the better deal. In your case with a high rate, I think this would be more than applicable. 

ERC’s are usually 1% of balance at day 365 of the expiry date. 6 months in, this would be 0.5% of the balance, 9 months in 0.25% of the balance and so on. If you have 4 months to go until end of April, I would put a guess that your ERC is sitting around 0.33% of your balance. Factor in if you applied now, it would take a month or two to complete so your ERC penalty will likely be peanuts, (literally)

CSL0183

In addition to that, how do you see this winter going with Covid and then in comparison to this time last year? Are we going to have a harsh high death toll Covid winter that will see more businesses shut, more Furlough and the economy tanking again or are you optimistic that things are on the up? 

Personally, I see us replicating what we were like March/April 2020 again. Winter is just hitting now, flu season beginning and Covid deaths ramping up. 

Then how do you think mortgage lenders will react with rates? Best applying now or in a couple of months when things may be a lot worse than they are now?

Just a consideration. 

RelievedSheff

The relevant info from our existing mortgage conditions regarding early repayment charges is attached below:


If I read that correctly it won't be "peanuts" to get out of this mortgage a few months early?

RelievedSheff

CSL0183 said:

In addition to that, how do you see this winter going with Covid and then in comparison to this time last year? Are we going to have a harsh high death toll Covid winter that will see more businesses shut, more Furlough and the economy tanking again or are you optimistic that things are on the up? 

Personally, I see us replicating what we were like March/April 2020 again. Winter is just hitting now, flu season beginning and Covid deaths ramping up. 

Then how do you think mortgage lenders will react with rates? Best applying now or in a couple of months when things may be a lot worse than they are now?

Just a consideration. 

I have no doubt that we are in for a long hard winter and that Covid will ramp up a notch after Christmas.

Luckily we are both in secure, long standing jobs that we have both been in for 20 plus years.

We can't predict what lenders will do. No one can. 

CSL0183

RelievedSheff said:

The relevant info from our existing mortgage conditions regarding early repayment charges is attached below:


If I read that correctly it won't be "peanuts" to get out of this mortgage a few months early?

When did you take out your current mortgage? I gather you are in month 20 of 24 so would incur a 2% charge as you are in year 2?

However, as you have paid 8 months and only have 4 months left in year 2. You would be 4/12 of 2% in an ERC which would equate to 0.7% of the balance (today). Factor in a couple months for the remortgage and you would likely be in the 0.3% region (if you remortgaged two months early) 

ERC’s are not fixed like in the illustration. They literally drop every single day. The % is worked out divided by 365 days. It is worth phoning up to check your ERC penalty today and how much it drops by each day. Then work out how much your new rate is and what the monthly saving is and then compare that against your ERC. 

I guess if you have a high outstanding mortgage balance though then even 0.3% ERC may be too much in relation to the cost saving on the monthly payment. It’s the maths though that you could sit and compare. 

CSL0183

RelievedSheff said:

CSL0183 said:

In addition to that, how do you see this winter going with Covid and then in comparison to this time last year? Are we going to have a harsh high death toll Covid winter that will see more businesses shut, more Furlough and the economy tanking again or are you optimistic that things are on the up? 

Personally, I see us replicating what we were like March/April 2020 again. Winter is just hitting now, flu season beginning and Covid deaths ramping up. 

Then how do you think mortgage lenders will react with rates? Best applying now or in a couple of months when things may be a lot worse than they are now?

Just a consideration. 

I have no doubt that we are in for a long hard winter and that Covid will ramp up a notch after Christmas.

Luckily we are both in secure, long standing jobs that we have both been in for 20 plus years.

We can't predict what lenders will do. No one can. 

My point was more to do with lending criteria, interest rates, house market pricing, down valuations and LTV borrowing. 

For example, it’s been pretty much impossible to get a 90% LTV over the last few months. Most lenders dropped their max LTV borrowing to 85% and in turn hiked up their rates for those products to 2.75%+ as opposed to say <2% previously. 

It’s not just about your security and suitability, more to do with the whole mortgage/housing market and the rates on offer. 

Good luck anyway, it will be a relief to get off that rate. 

RelievedSheff

If your equation is right then the ERC today would be in the region of £1300.