Remortgage now or wait?

ElwoodBlues

Currently got about 100k outstanding on my mortgage with NatWest. I'm almost 3 years into a 5yr fix at 2.44%. House is worth about 300k, so LTV is around 33%. It wasn't a particularly great rate when I took this re fix with them, but compared to the hassle of remortgaging, broker advised sticking with it. But now I'm wondering whether to wait it out to the end of the fix so I can avoid a penalty (1% of balance per year remaining), or to try and remortgage now (for 5 or 7 years). I've worked out that the interest saving will just about cancel out (or be just over) the penalty for leaving the fixed rate early, so it appears as though there's nothing to lose?

Rates look pretty low at present, and there seems to be a good chance the base rate will start creeping up soon? Is that likely to translate into higher mortgage rates two years from now?

dimbo61

Again crystal ball time !
I hate the idea of paying One penny more than I need to the mortgage lender.
It costs more than the ERC,s to change lenders and you need to know how much you will owe at the end of the fix.
Me I would overpay 
We have had years of low rates and millions of homeowners on low rate deals so can't see rates jumping up that fast.

Thrugelmir

If you remortgage to another lender other costs will need to be factored in. Crunching the properly numbers is key. 

ElwoodBlues

I already have been overpaying (allowed to pay up to 10% of the balance each year). What other costs are involved when remortgaging? Valuation fee, product fee, anything else I need to consider?

According to the MSE mortgage best buys table, my current lender is offering 0.97% fixed for 5 years. But I'm guessing that there's no way they'd let me do a product transfer whilst I'm locked in on my existing fix, even if I pay the ERC?

Thrugelmir

Mortgage exit fee, legal fees. 

steampowered

If you have been overpaying your mortgage, it could be time to make the most of your stocks & shares ISA allowance and increasing pension contributions, instead of the overpayments? 

That will be far, far better over the longer term than paying off the mortgage a bit earlier.

Personally I would wait to remortgage. Especially if there is a product fee attached. 

ElwoodBlues

I can't see any mention of an exit fee in my mortgage terms, perhaps Natwest don't charge that? What are typical legal fees for a remortgage? Yes, there would be a product fee for most of the deals I'm looking at.

At current rate of overpayment, I'll reduce my mortgage term by about 14 years.

I'm already putting a fair chunk amount into my SIPP, also have approx 40k in cash  savings. The cash I'm holding back as hoping to do an extension on the house, if I can get planning permission for it.

getmore4less

Quantify the options to make a more informed choice.

Do the numbers for a product switch same lender.
They are possible not sure if NatW allow them

New rates came out today 21st Oct

£100k 2y  ERC 2% 

rates for a new 2y fix.

full term 27 (guess)

amount	rate	payment	owing
£100,000.00	2.44%	£421.69	£94,634.95
£102,995.00	0.85%	£421.69	£94,556.72
£102,000.00	1.12%	£421.69	£94,079.45

~£550 better off on a new no fee 2y deal, same position in 2 year looking for a new deal.

You pay less over the 2 years even paying the ERC.

or of you go for the 5y options(fee options is better over 5years).

in 2 years

amount	rate	payment	owing
£100,000.00	2.44%	£421.69	£94,634.95
£102,995.00	1.04%	£421.69	£94,936.61
£102,000.00	1.39%	£421.69	£94,617.06

N0 fee get you ahead the fee option  has you £300 behind at Y2

in 5y

amount	rate	payment	owing
£100,000.00	2.44%	£421.69	£86,080.65
£102,995.00	1.04%	£421.69	£82,530.48
£102,000.00	1.39%	£421.69	£83,150.83

If you took a 5y paying the ERC and  fee now 

rate needed on for 3 years after the 2y options(nothing or 2y switch) to be no worse off.
£82,530 target

do nothing

amount	rate	payment	owing
£95,630.00	0.77%	£421.69	£82,511.49
£94,635.00	1.15%	£421.69	£82,517.04

no  safety there for a new 2 or 5y option.

2y switch

amount	rate	payment	owing
£95,075.00	0.99%	£421.69	£82,537.80
£94,080.00	1.37%	£421.69	£82,536.85

A bit better bit still not much safety net 0.25% rise on a second 2y no fee

Breakeven on the current 5y rates between a fee no fee on the 5year options is ~£65k
You won't get anywhere near that in 2years so looking at the fee based options for a new 5y

if rates do nothing over 4years with a choice of 2x2y or 4y of a 5y.

amount	rate	payment	owing
£102,000.00	1.12%	£421.69	£85,979.78
£102,995.00	1.04%	£421.69	£86,709.13

~£730 worse of on the 5y

the second 2y rate can be as high as  

amount	rate	payment	owing
£94,080.00	1.52%	£421.69	£86,712.72

0.4% safety margin at Y2 to be no worse off at Y4

If you switch to 5y worst case is a few £100 down if nothing happens to rates and you go for 2y options.

Even small rises will eat into that and at 0.4% on any 2y product in 2years  and you are worse off at 4 years if you take the current 2y option to save £550 in the first 2 years 

ElwoodBlues

Thanks Getmore4less. Struggling to digest all those figures. Interesting that the Natwest rates have jumped from .97 to 1.02% in  the last few days, an indicator of things to come?

What I'd worked out:

I get into the 2 yr remaining (2% ERC) stage from 1st Jan 2022. Balance by then would be about £101k. So ERC would be £2020. Term remaining is about 27 years.

If I switch to a new 5 yr fix at 1.02%, I'll pay £21420 in repayments plus ERC = £23440. And owe £85,500

If I see out the next 2 years, and then assuming fixed deals are still the same as presently, I'll pay £23700 and owe £85,000

There's also 2 yrs worth of fee to consider (out of 5), so about £440 worth of extra penalty effectively.

So all in all, there's only a whisker in it, as things stand. But that depends on Natwest still offering fixes of 1.02% 2 years from now. If rates go up by 0.5% by then, that'll cost me about £460 a year in extra interest / £1380 over the 3 years difference in fixed term.

If rates stay the same and I refix now I'll be in about the same position. If interest rates go up at all over the next 2 years then I'll be worse off than refixing now. And obviously, if they go down I'll be better off, but what are the chances of that?

 

Thrugelmir

ElwoodBlues said:

I can't see any mention of an exit fee in my mortgage terms, perhaps Natwest don't charge that? 

Every year with your annual mortgage statement. You'll receive a tariff of current charges. The mortgage exit is to cover the legal work in discharging the charge registered on the property.  Could be in the region of £150-£250. 

ElwoodBlues

Yes, I do have their brochure of standard charges. It says the exit fee will vary depending when I took the mortgage, and to check my documentation. But my mortgage agreement document doesn't mention the exit fee anywhere. Not sure if that means it's included in my mortgage or if the charge is a secret. Either way, a few hundred pounds is neither here nor there in the scheme of things.