Re-mortgage with E.R.P's or stay with current deal.

Mattx05

Hi All,
My family and I are currently on an HSBC mortgage for our residence and owe approx. £129,800. We paid just over £3000 in interest in the last calendar year on that debt. Our deal ends in March 22 and as of Jan 21 statement the early repayment charges of £1400 are in effect until the deal ends.
My question is, given the tapering off of the interest at the end of the mortgage term (approx. 21 years total), would it be sensible to pay the early repayment charge this year and move onto another deal shortening the term? Best is HSBC @1.14% until 2024 which keeps our monthly payments about the same but shortens our overall mortgage term from 21 years to 18 years. 
In broad terms...I think its a question of £1400 E.R.P charges V's 3 years of late term interest?? Is it possible to quantify the last 3 years of interest (current rate is 2.34%).
Any help or advice would be much appreciated...sure there's a lot of people with this query!
Cheers.

Matt

Thisisnotasmile

I'm not an advisor, and have my own post querying calculations as I disagree with what an advisor has told me, so please be very careful about relying on what I say.

Surely the comparison here is between paying the higher interest until March vs. ERP? You'll be able to remortgage in March to a better deal and shorten the term anyway (obvious caveat that the market may have changed and different deals will be available which could be better or worse than now). I haven't done the calculation, but the ERP seems significant compared to a few months of marginal interest accrual. Bear in mind you wouldn't save the total interest you're paying now, just the difference between the two rates. 

Mattx05

That's very helpful thanks. Another perspective and some more experience helps see things clearly. Much appreciated. I'd imagine hanging on until March 22 to renegotiate is probs best as you say its only a few months and rates are likely to still be very good, or at least better than 2.34%.
Cheers

Matt

getmore4less

(HSBC has new rates today)

you can ignore the term until you are hitting the ERC free limit with overpayments.

All the term does is set the payment but you can pay more and that is what decided how long your mortgage takes.


HSBC I thought the  ERC was based on balance at time I will go with 1% of balance.


Any calculations need to be over the short term of the deals and can you recover the costs 

now  
£129,800 at 2.34%  ERC 1% until March 22 ( work with 9 months)

That 3 year 1.14% rate comes with a £999 fee

you rate saving is 1.2% against a 1% fee but only 9months so you can't recover all of it.


I will guess you are paying around £660pm now.



total fees to switch  £2,297

This is what you owe in 9 months ( with 2y3months left on your 3y fix)

amount	rate	payment	owing
£129,800.00	2.34%	£660.00	£126,109.30
£132,097.00	1.14%	£660.00	£127,268.11

£160 short of paying the ERC(after you add the new fee to the 2.34% change after 2 months) 

you wait and the rate is still available, what's left after 2y3m

amount	rate	payment	owing
£127,268.00	1.14%	£660.00	£112,531.23
£127,109.00	1.14%	£660.00	£112,368.10

better of waiting by ~£160 if rates don't change

what rate can they go up to to break even.

amount	rate	payment	owing
£127,268.00	1.14%	£660.00	£112,531.23
£127,109.00	1.20%	£660.00	£112,532.33

0.06% margin  which is not a lot you are betting £160 that rate will rise more than that in the 9 months
.
two other options with HSBC 

The 2y fix 0.99% gets a lot closer to paying off the ERC(£13 down) only locks you in for 1y3m longer.
The 5y at 1.19%  might be a better hedge on rate rises if that's what you think they are going to do.


*switch now and the rates run to 31st Aug so the numbers need to be run based on 26month not 24

If you plan overpayments that neds to be factored in as well