HSBC Fixed Rate Switch - Early with ERC? Or wait..

joon79

Hi all,

We are currently on a 5yr fixed rate mortgage with HSBC which is due to end 30th September 2022, details below:



With all the talk of rising interest rates this week, I was investigating a product switch today to lower the risks of ending up on a more expensive product if I was to let the mortage run its course until next year.  HSBC have a 1.04% 5yr fix with £999 booking fee highlighted below which seemed to be the best option available (booking fee to be paid upfront).



I've tried to do the maths myself but I'm struggling to work out if its worth locking in now on the lower rate with the fee hit to protect again possible interest rises that occur before mid next year. 

If the predictions of rates rising to around 0.5%-0.75% by that time are right then I'm guessing 5yr rates might be around 2-2.5% by then?  All crystal ball stuff I know, but if there wasnt much difference in costs over the next 5 years then a small hit would be worth it for peace of mind.

Any help would be appreciated, or if more info is needed please let me know.

Many thanks

getmore4less

I understand HSBC is prorata 1% a year

You can't recover that with those rates in the short term.

What you can do is work out what rate would break even if you switch now with ERC and fee or sept 2022 with just the fee over the 5years switching now.

Any overpayments planned?

joon79

Thanks for the reply.  We have overpaid occassionally, but there is nothing regular that would be worth factoring into these calculations I think.  Many thanks.

getmore4less

OK lets have a go at quantifying this with some real numbers.

£207,941, 21y11m fix till 30thsept 2022

Going to use 1 Nov as switch date leaving 11 months.
Use the £1695 ERC

New mortgage 5y fix (make it a 11+49 for the calcs)
1.04%  £999 fee (lot cheaper than the no fee)

total to add or pay  £2,694

Use the current payment  rounded up to £950pm

In 11 months

amount	rate	payment	owing
£207,941.00	1.69%	£950.00	£200,661.24
£210,635.00	1.04%	£950.00	£202,156.38

still ~£1,500 ahead if you keep your current deal that buys a £500 safety net

in 5y == 60 months

amount	rate	payment	owing
£207,941.00	1.69%	£950.00	£166,828.39
£210,635.00	1.04%	£950.00	£163,390.78

target for a new deal  to get to 49months later  £163,391

49 months from £200,661 with a £999 fee (adjust rate to get the breakeven)

amount	rate	payment	owing
£201,660.00	1.108%	£950.00	£163,392.28
£201,660.00	1.040%	£950.00	£162,872.88

That's a tiny safety net against the risk waiting 11months.
(tiny as in smaller than the small swings we have seen up/down over the last few months of competition with no change in base) 

if available rates stayed the same you are ~£520 worse of switching now. 

you could do the same for 10 months to get a range but it won't be a lot different. 

j.a.mcguire

getmore4less said:

I understand HSBC is prorata 1% a year

You can't recover that with those rates in the short term.

What does this mean, please?

getmore4less

j.a.mcguire said:

getmore4less said:

I understand HSBC is prorata 1% a year

You can't recover that with those rates in the short term.

What does this mean, please?

It goes down every day

joon79

Thanks for crunching the numbers for me, much appreciated.  A couple of further questions if I can please:

"in 5y == 60 months

amount	rate	payment	owing
£207,941.00	1.69%	£950.00	£166,828.39
£210,635.00	1.04%	£950.00	£163,390.78

"

• Does this mean that if I was to switch now, even adding the fees to the mortgage, at the lower rate, I'm £3438 better off? 

"target for a new deal  to get to 49months later  £163,391

49 months from £200,661 with a £999 fee (adjust rate to get the breakeven)

amount	rate	payment	owing
£201,660.00	1.108%	£950.00	£163,392.28
£201,660.00	1.040%	£950.00	£162,872.88

That's a tiny safety net against the risk waiting 11months."

• Does this mean that factoring in a £999 fee, I'd need to get a deal of 1.108% or lower in 11 months time if I decided to run to the end of my current deal to avoid the ERC? 
• Apologies but I'm not fully understanding what you mean with the term 'safety net'.  Do you mean its tiny and so therefore its a good plan to switch now? or tiny so its not worth doing? 

"if available rates stayed the same you are ~£520 worse of switching now"

• £520 doesnt seem too bad to switch now with all the uncertainty in the market at the moment.  I notice HSBC have raised their rates already last week and the best deal I can now get is 1.19%.  Does this swing things in the favour of taking the 1.04% rate? (reserved until 16th Nov).
• If I were to pay both the ERC and the £999 fee up front does that give much bigger gains for me in the 5 year period?  I'm basically looking to do whats cheapest over the long term.

Sorry for all the questions, I just want to be sure before either letting the rate expire next week or committing to the new fix.

Many thanks.

getmore4less

• Does this mean that if I was to switch now, even adding the fees to the mortgage, at the lower rate, I'm £3438 better off? 

the 5year is a comparison if you got the same as your old rate but you would change to a rate you don't know yet.

• Does this mean that factoring in a £999 fee, I'd need to get a deal of 1.108% or lower in 11 months time if I decided to run to the end of my current deal to avoid the ERC? 
• Apologies but I'm not fully understanding what you mean with the term 'safety net'.  Do you mean its tiny and so therefore its a good plan to switch now? or tiny so its not worth doing? 

Yes, that's the break even rate over the 60months if you wait,  the  safety net is the margin over the rate you could get today 

I have changes the format to make it more consistent doing your numbers in my new format.

Mortgage	£207,941
payment	£950	ERC/FEE
rate	1.69%	£1,695
new rate	1.04%	£999
Time	Years	months
Left on current	0	11
New fix term	5	0
amount left after(months)		11
Start	rate	End
£207,941	1.69%	£200,661
£210,635	1.04%	£202,156
amount left after(months)		60
£207,941	1.69%	£166,828
£210,635	1.04%	£163,391
Switch when ERC £0
Break even rate needed no fee and fee)		49
£200,661	1.245%	£163,390
£201,660	1.108%	£163,390
same rate in 11months
£201,660	1.04%	£162,873

• if I were to pay both the ERC and the £999 fee up front does that give much bigger gains for me in the 5 year period?  I'm basically looking to do whats cheapest over the long term.

Doing it with a £2694 overpayment at the start(inc if you keep the current deal
makes small difference to the result.
the saving if you can get the same rate goes sown a bit and the margin goes up a bit
(both because any overpayment at the stars is better for the higher rate over that first 11months)
(what I have not done is change the ERC as it would be different, a function of amount and days left) 

Mortgage	£205,247
payment	£950	ERC/FEE
rate	1.69%	£1,695
new rate	1.04%	£999
Time	Years	months
Left on current	0	11
New fix term	5	0
amount left after(months)		11
Start	rate	End
£205,247	1.69%	£197,925
£207,941	1.04%	£199,437
amount left after(months)		60
£205,247	1.69%	£163,897
£207,941	1.04%	£160,553
Switch when ERC £0
Break even rate needed no fee and fee)		49
£197,925	1.250%	£160,552
£198,924	1.111%	£160,552
same rate in 11months
£198,924	1.04%	£160,018