Switch and Early Repayment Charges

daverave7

I'm looking to do a mortgage switch with HSBC, to tie in to a low 5 year rate. But my current mortgage (with HSBC) has an early repayment charge, and in the switching process online, it say they "may" charge this fee!  Am I likely to be charged this? My thinking was that they might not charge since I was sticking to a mortgage with the same provider.

london21

How many years left? There is usually ERC to pay regardless if staying with current lender.

Might be worth calling HSBC or checking your mortgage documents. 

Thrugelmir

By switching early you are going to incur the ERC. 

daverave7

Yeah, have requested the switch, and fees need to be paid!  I have around 14 months left, but the fees make it worthwhile given that I am locking in to 1.14 % for 5 years.

ElwoodBlues

You might find its better to wait for another couple of months so you've less than a year left. ERC is often a percentage per year, decreasing as the years go on. So waiting 2 more months might reduce your ERC - for example by 50% if it goes from 2% to 1% in the final year.

getmore4less

Be interested in your calculations that show its its worth it.

daverave7

getmore4less said:

Be interested in your calculations that show its its worth it.

I calculated how much I would pay back up to January 2027 based on different scenarios: locking in now at 1.14 and locking in on January 2023 at a variety of rates (and including my current rate of 1.74 %).  The locking in now (i.e. by switching) included an ERC of £1700. Mortgage is currently around £160K for 16 years, around 50 % LTV.

The savings I would make over the duration from now up to January 2027, and based on the different rates I might have locked in to on January 2023 are:-

1.14 %  -£1178
1.24 %  -£867
1.34 %  -£476
1.44 %  -£133
1.54 %   £259
1.64 %   £602
1.74 %   £994
1.84 %   £1386
1.94 %   £1729
2.04 %   £2121

So, I would only save money IF rates would increase by 0.4 %, come January 2023.  It's more about having some security for the next 5 years, which might be a bit bumpy!  This is unlike me as I usually gamble!!!

Hope this helps?

*have corrected (in bold) from 2022 to 2023 (as noted below!)

daverave7

ElwoodBlues said:

You might find its better to wait for another couple of months so you've less than a year left. ERC is often a percentage per year, decreasing as the years go on. So waiting 2 more months might reduce your ERC - for example by 50% if it goes from 2% to 1% in the final year.

I checked, for part years they use a pro rata fee.

kate6000

I'm in a similar situation and started a thread on the same topic last week. I'm with Santander and called them and they were willing to negotiate on the ERC and reduce it by 20% if staying with them so worth a try 

daverave7

kate6000 said:

I'm in a similar situation and started a thread on the same topic last week. I'm with Santander and called them and they were willing to negotiate on the ERC and reduce it by 20% if staying with them so worth a try 

I went ahead and took the ERC on the chin... I wanted to sort it quickly before the budget. Have noticed that the rate (with HSBC) has already gone up by 0.1 % since.

getmore4less

daverave7 said:

getmore4less said:

Be interested in your calculations that show its its worth it.

I calculated how much I would pay back up to January 2027 based on different scenarios: locking in now at 1.14 and locking in on January 2022 at a variety of rates (and including my current rate of 1.74 %).  The locking in now (i.e. by switching) included an ERC of £1700. Mortgage is currently around £160K for 16 years, around 50 % LTV.

The savings I would make over the duration from now up to January 2027, and based on the different rates I might have locked in to on January 2022 are:-

1.14 %  -£1178
1.24 %  -£867
1.34 %  -£476
1.44 %  -£133
1.54 %   £259
1.64 %   £602
1.74 %   £994
1.84 %   £1386
1.94 %   £1729
2.04 %   £2121

So, I would only save money IF rates would increase by 0.4 %, come January 2022.  It's more about having some security for the next 5 years, which might be a bit bumpy!  This is unlike me as I usually gamble!!!

Hope this helps?

You said 14months to ERC free, not 2(Jan 2022)


I think HSBC ERC is now linear on days left at 1% a year.



I prefer the breakeven rate change calculation

on £160k HSBC 5y fix £999 fee products are better than the no fee options.

Using your numbers 

16 years is around £955 round up to £1k

£160,000 
1.74% 14 months then switch or
1.14% £1,700 ERC 5 years

amount	rate	payment	owing
£160,000.00	1.74%	£1,000.00	£149,146.07
£161,700.00	1.14%	£1,000.00	£149,777.16

and 5 years

amount	rate	payment	owing
£160,000.00	1.74%	£1,000.00	£111,892.51
£161,700.00	1.14%	£1,000.00	£109,467.21

rate needed in 14month to break even 3y 10month later
 

amount	rate	payment	owing
£149,146.00	1.27%	£1,000.00	£109,469.97