To remortgage early or not?

k-hkr

Hi, I am currently pondering whether to remortgage early and pay the early redemption fee of 2% but cannot get my head around working out if it is worthwhile.

Outstanding loan £84500 (but reckon remortgage amount by the time it went through would be nearer 83k as over pay each month)
Current rate 1.94% due to end Aug 2023
Borrowed 105k Aug 2018 paying £680/m (was overpaying chunks but have been doing extra £340/m for a while)

This will be my last remortgage as will pay off any outstanding at end of 5 years, from now, as plan to retire then (Oct 2026)

Best 'no fee' rate for 5 yr fix is currently 1.69%. Am looking at 8 year term, if do now, and overpay £100/m with approx 30-35k outstanding at end needing paying off. I don't want to get it all paid off as have to live for today a bit too...

The easy bit is working out savings over next 18m versus early redemption fee of £1600-1700, and on that basis I wouldn't remortgage early.

The guesswork then comes into play as to what rates are likely to be when I did remortgage Aug 2023. Everything I read says there are likely to be more base rate rises and predictions are possibly another 1% on base rates over next 2 years. On that basis I reckon fixes would be 2.5% plus. I would only need 3 yrs deal by then, with term of say 6 years and overpay again to have around £1000 - 1100/m for cost.

I think it is very evenly balanced and, if so, would probably rather have the security of knowing I have a good rate to see the mortgage out.  Thoughts?

london21

You have to take into consideration all the costs, early repayment charge, legal fees, product fees etc.

Likely better to wait for current deal to end. 

k-hkr

Most deals are free legals/ valuation and would only take a no fees deal as lower rates with fees don't ad up for a lower amount like what I would be borrowing.

Only 'cost' would be the early repayment charge of approx £1600-1700

getmore4less

I will do some number crunches later as a little busy for a while..

You cannot recover the the ERC using the normal calculations but there may be scope to consider further once the break even rates are know for the 5y period of a new fix now against later.

in the mean time you can add a bit more information.

Does the ERC drop to 1% at any time before end Aug 2023?
Which lenders are you looking at?  (1.94% was nationwide rate for £999 fee 60% LTV back in Aug 2018)
What's your target payment 



Think it is very evenly balanced and, if so, would probably rather have the security of knowing I have a good rate to see the mortgage out.  Thoughts?

Once we have 5y+ Xy  options  that will say how close/evenly balanced it might be.
Then there is the 10y option to look at.

k-hkr

getmore4less said:

I will do some number crunches later as a little busy for a while..

You cannot recover the the ERC using the normal calculations but there may be scope to consider further once the break even rates are know for the 5y period of a new fix now against later.

in the mean time you can add a bit more information.

Does the ERC drop to 1% at any time before end Aug 2023?
Which lenders are you looking at?  (1.94% was nationwide rate for £999 fee 60% LTV back in Aug 2018)
What's your target payment 



Think it is very evenly balanced and, if so, would probably rather have the security of knowing I have a good rate to see the mortgage out.  Thoughts?

Once we have 5y+ Xy  options  that will say how close/evenly balanced it might be.
Then there is the 10y option to look at.

Thanks for that. Much appreciated. 

Yes, ERC drops to 1% at 1 year, so Aug 2022.
I am currently with HSBC and just used here to compare 'no fees' 5 yr fixes and HSBC/First Direct were at 1.69%
Target payment, in terms of monthly, would be around £1000 using term, then have flex to overpay maybe £100/m. Could do more but you have to get a balance with living for today and will use portion of lump sum from pension to pay down the remaining 30k ish when retire. No option for 10yr due to planning to retire in 5 yrs.

Thrugelmir

k-hkr said:

The guesswork then comes into play as to what rates are likely to be when I did remortgage Aug 2023. Everything I read says there are likely to be more base rate rises and predictions are possibly another 1% on base rates over next 2 years. On that basis I reckon fixes would be 2.5% plus. I would only need 3 yrs deal by then, with term of say 6 years and overpay again to have around £1000 - 1100/m for cost.

International money markets will also have considerable influence over the cost of bank funding. Banks don't borrow at base rate. Focus on what you can influence i.e. the debt owed. Anything else can be only be addressed when the time arrives and the choices are known. 

getmore4less

Got distracted yesterday......

we have take a new 5y pay ERC or stay with what you have till end Aug 23

looks like your £105k was on a 15y term so would have 10 left at the end of the fix.

say we did this end Jan 2022 that's 7 months till 1% ERC and 19 month to 0%

Going with £1kpm £84k 2% ERC 1.94% or a new 1.69% 5y  (probably not exactly 5y but that will do for now.

Mortgage	£84,000
payment	£1,000	ERC/FEE
rate	1.94%	£1,680
new rate	1.69%	£0
Time	Years	months
Left on current	0	19
New fix term	5	0
amount left after(months)		19
Start	rate	End
£84,000	1.94%	£67,339
£85,680	1.69%	£68,759
amount left after(months)		60
£84,000	1.94%	£29,596
£85,680	1.69%	£30,667
Switch when ERC £0
Break even rate needed no fee and fee)		41
£67,339	2.548%	£30,667

£800pm its  2.436%
£1100pm   2.625%

that very close to your estimate of 2.5%

to get an idea of the cost if you get it wrong we can look at what left for a few rates

£67,339	2.00%	£29,701	£966.50
£67,339	2.50%	£30,582	£85.38
£67,339	3.00%	£31,480	-£812.61

Looking at HSBC product switch rates now(20 Jan sheet)
2y 1.39%
3y 1.59%
5y 1.59%   ? that makes the breakeven 2.374% on the £1kpm

This 5y deal ends end of April 2027 63m that changes the breakeven to  2.343% from 2.374%   

Also taking the 2y gives another bit of margin for that time period.

very little in it if you think rates will be ~2.5% at the end Aug 2023

You could look at the wait till ERC drops to 1% but that needs a guess for the switch rate on around £78k

if they stay at around 1.6%  then the break even is 1.9% if they go up to 2% you are close to the 2.5% 

k-hkr

Thanks for the comprehensive breakdown getmore4less. It is, as I expected, all about having an accurate crystal ball, which nobody has! I only googled for a few opinions from financial market analysts, but they are only making educated guesses. 

I think that on balance I may go for a remortgage now and lock in at a reasonably attractive 'free' remortgage rate just to take the risk out of rates going up to the 2.5% or higher. Yes, there's a chance they may not go up that much, and I lose out a little, but peace of mind comes into it as always with fixed rate deals. I do have to be careful about terms though as plan on retiring Oct 2026 so don't want to be skewing all the above by adding a 1% ERC by doing so a few months earlier than the 5 years!

Thanks again.

getmore4less

No need to pay it off early just let it run the last few months