Early repayment fee

mrbios

Hi,

I'm after some advice, I'm currently just going into Year 4 of a 5 year fixed rate of 3.48%. Payments are currently £742pm but if i remortgaged they could be £536pm on a new 5 year fixed rate at 1.18%.

I'm considering re-mortgaging and adding the early repayment fee to the new mortgage amount, along with the product fee. I'm trying to find the paperwork containing my exact early repayment charge at the moment, but it looks like it would be very similar to the amount i would save monthly by re-mortgaging. 

Is this worth doing right now with interest rates so low? I'm afraid of potentially losing out while the opportunity is there and interest rates potentially going up in the future, or is it worth waiting until June 2023 when i can re-mortgage without a fee, and hope the interest rates remain the same? What would you do in this situation?

I know it's a complete minefield of unknowns so I'm not expecting a solid "do this" answer, the only downside i can spot is if i have it wrong and interest rates don't go up in that time, i guess it's a gamble? 

Thanks

steampowered

What is your early repayment fee? 

You should look at it from the perspective of whether the amount you save on interest over the remaining term of the mortgage, is bigger than the early repayment fee and any remortgaging fees.

Don't look at it from the perspective of monthly payments. You could equally reduce your monthly payments by extending the mortgage term but that's not really saving money. 

I wouldn't gamble on trying to lock in mortgage rates now. Lots of people did that over the past few years; everyone thought interest rates would go up; they actually went down. Unlikely interest rates are going to soar dramatically over the next year or 2.

london21

Personally I will wait it out or if you would rather go with the new deal, call your current mortgage provider to find out what the ERC charge is.

Interest rates will change but it might be in 1,2,3 or more years. No one knows for certain. 

mrbios

steampowered said:

What is your early repayment fee? 

You should look at it from the perspective of whether the amount you save on interest over the remaining term of the mortgage, is bigger than the early repayment fee and any remortgaging fees.

Don't look at it from the perspective of monthly payments. You could equally reduce your monthly payments by extending the mortgage term but that's not really saving money. 

I wouldn't gamble on trying to lock in mortgage rates now. Lots of people did that over the past few years; everyone thought interest rates would go up; they actually went down. Unlikely interest rates are going to soar dramatically over the next year or 2.

Thanks, that's a very good point on perspective i hadn't considered. It does appear that by adding the ERC to the mortgage i would indeed save on interest over the term of the mortgage.

I just read earlier that they were potentially going up by 0.15% around xmas time, followed by 0.25% in Feb and 0.25% in August next year. I know those are uncertain figures, but if the internet rate rises to 0.75% by the end of next year, does that mean a current rate being offered at 1.15% for example, would be offered at 1.9% by the end of next year? Have i understood it correctly or is there more to it all than just adding it on to lenders current rates?

I certainly wouldn't have any interest in extending the term of my agreement, so no worries about doing that. 

dimbo61

I hate the idea of giving the Bank or Building societies one penny more than I need to.
You will have a new mortgage fee and other costs to pay. Legals + searches.
Exit fee plus ERC,s with existing lender.
If you have spare money overpay the mortgage each month by £50/100/150.

getmore4less

Missing information.

Lender
Amount borrowed(current)
full term
ERC

Assuming the full term is the same for your quoted rates and payment.
(many round so they end up different)


My tool calculates(if the lower rate payment is before adding the ERC and fees)


£172,445  32y 3m   (£742.04, £535.96)

Depending how you rounded the payments
for 0.5 the range is 
£173,031  32y 5m (£742.49, £535.51)
£171,835  32y 1m (£741.50, £536.35)

the calculation needed is can you recover the ERC in the time left before it goes to zero
(if it goes sown at some point you have an extra calc to do)

(NOTE : you cant do the difference in rate x months)

Would you plan to pay the same as now or reduce the payment?
Would you plan to pay any of the ERC or fee up front or is it all getting added(if they let you)?

getmore4less

dimbo61 said:

I hate the idea of giving the Bank or Building societies one penny more than I need to.
You will have a new mortgage fee and other costs to pay. Legals + searches.
Exit fee plus ERC,s with existing lender.
If you have spare money overpay the mortgage each month by £50/100/150.

If the new rate saves enough interest you  pay the bank less overall. 

piddly overpayments won't do much even at 3.48%
Taking 2% off the rate on the full amount will but it needs to be enough to cover the costs of switch

getmore4less

similar question last year

https://forums.moneysavingexpert.com/discussion/6151400/worth-taking-the-erc-hit#latest

That would suggest the current full term is 36y
That 3.48% rate £742  payment that would make the amount outstanding closer to £182,600