How do I work out if it’s better to change mortgage?

Mrsbaker09

Hello everyone 
does anyone know how to work out if it is better to stay with my current mortgage versus paying the penalty fee and moving? I have two years left on a fixed rate (3.69%) mortgage of £175k with a penalty fee of 2%.

I can see there are low interest rates at the moment so I’m wondering if it is worth taking a hit on the penalty and new mortgage fee now to lock in to this, as I’m worried about what might happen in the economy in the next couple of years.
only thing is I’m not quite sure how to work out which option makes better financial sense. Is there a formula? Thanks

grumiofoundation

Depends what interest rate you could get on new mortgage.

Simplistically if you can get a mortgage of less than ~2.5% (with no fee) it will be worth paying the ERC and switching. If fee would need to factor this in.

(Rough) calculation:
3.69% of 175k = £6450

Exact amount of interest you will pay will depend on how much term (amount of capital paying off each month) but lets assume you will pay ~£12500 in interest over the next 2 years.

2% of £175,000 = £3500 (Are you sure the 2% applies to the whole amount, often can overpay 10% each year so this would reduce amount of ERC).

So if you can get a new mortgage under which you will pay  less than £9000 in interest plus fees over the next 2 years will save money.  £9000 works out at ~2.5% each year. 

K_S

Mrsbaker09 said:

Hello everyone 
does anyone know how to work out if it is better to stay with my current mortgage versus paying the penalty fee and moving? I have two years left on a fixed rate (3.69%) mortgage of £175k with a penalty fee of 2%.

I can see there are low interest rates at the moment so I’m wondering if it is worth taking a hit on the penalty and new mortgage fee now to lock in to this, as I’m worried about what might happen in the economy in the next couple of years.
only thing is I’m not quite sure how to work out which option makes better financial sense. Is there a formula? Thanks

@mrsbaker09 You can get an idea by playing around with the MSE Ditch Your Fix calculator.

https://www.moneysavingexpert.com/mortgages/fixed-mortgage-calculator/

getmore4less

Mrsbaker09 said:

Hello everyone 
does anyone know how to work out if it is better to stay with my current mortgage versus paying the penalty fee and moving? I have two years left on a fixed rate (3.69%) mortgage of £175k with a penalty fee of 2%.

I can see there are low interest rates at the moment so I’m wondering if it is worth taking a hit on the penalty and new mortgage fee now to lock in to this, as I’m worried about what might happen in the economy in the next couple of years.
only thing is I’m not quite sure how to work out which option makes better financial sense. Is there a formula? Thanks

Simple way is to look at where you will be in two years with the current mortgage.
then do a compare with a potential new one using the same money and see if you get a lower debt.
.

but you have not given the important bit of information what you currently pay/full term so will have to use an example.

note the MSE calculator does not know the payment so cannot get the right answer
The higher the payment(shorter the term) the lower the rate needs to be to break even.

lets do it for 20years.

amount	rate	payment	owing
£175,000.00	3.69%	£1,032.10	£162,715.80

What rate do you need when you add 2% ERC  to get to the same amount in 2 years.

amount	rate	payment	owing
£178,500.00	2.63%	£1,032.10	£162,724.72

lets go with a £1k fee options.

amount	rate	payment	owing
£179,500.00	2.33%	£1,032.10	£162,722.70

what is your LTV,  any issues that may effect getting a mortgage and current payment/term

do you plan to overpay? 

allygate

Simply google ditch your fix or switch my fix. This will point you towards calculators that will do what you need. Then contact an advisor or use a comparison site to see if you can get that rate.

This worked perfectly well for me.

lonibra

Use Martin's mortgage finder to find the best rate you can get and compare with the calculator's minimum rate/fee  which makes it worth switching

K_S

lonibra said:

Use Martin's mortgage finder to find the best rate you can get and compare with the calculator's minimum rate/fee  which makes it worth switching

@lonibra I would add here that the "best rate" might not be available/applicable for your circumstances/scenario so it would be wise to either confirm lender affordability and criteria yourself or run it past a broker.

Mrsbaker09

Amazing thank you everyone I will read properly later thank you