Time to switch and fix given £2.5k ERC?

inkydolphin

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

IAMIAM

Mine finishes about the same time, I wouldn't bother. Just apply in 6 months to complete in Jan 2024.

getmore4less

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

inkydolphin

getmore4less said:

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

- LTV 29%
- rate of new fix 1.64% (5 years) - gives reduction in yearly payments of £216
  (or 1.39% with £999 fee (upfront or added to loan))
- staying with same lender (much easier due to changes in employment circumstances)
- 15 years remaining

I'm old enough to remember 17% interest rates - was young enough to be purely a saver though...

inkydolphin

Oh wow - just realised from reading other posts that ERC will now have reduced to 2%. Bit sneaky giving you the 3% amount on your yearly statement when it drops to 2% the month after... Certainly makes switching now more attractive.

(sorry would be have edited previous post but can't yet)

Thrugelmir

inkydolphin said:

getmore4less said:

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

- LTV 29%
- rate of new fix 1.64% (5 years) - gives reduction in yearly payments of £216
  (or 1.39% with £999 fee (upfront or added to loan))
- staying with same lender (much easier due to changes in employment circumstances)
- 15 years remaining

I'm old enough to remember 17% interest rates - was young enough to be purely a saver though...

How are you going to fund the ERC and any other costs incurred in switching lenders? 

getmore4less

inkydolphin said:

getmore4less said:

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

- LTV 29%
- rate of new fix 1.64% (5 years) - gives reduction in yearly payments of £216
  (or 1.39% with £999 fee (upfront or added to loan))
- staying with same lender (much easier due to changes in employment circumstances)
- 15 years remaining

I'm old enough to remember 17% interest rates - was young enough to be purely a saver though...

This is a case where it would have made sense to have tested the ditch the fix before now.
(when approaching a drop in ERC you can look a few months ahead and lock in)


Going with the 2% ERC on £80k and doing the ditch the fix calculation.

end 2023 going with Dec and end of this month to change,  22months left on the deal
(a few months out  won't change the result on these base numbers).

Also going with 60m for the new deal.

payment of £520  (based on £80k 15y 2.14%)  NO fee is better by £180

Mortgage	£80,000
payment	£520	ERC/FEE
rate	2.14%	£1,600
new rate	1.64%	£0
Time	Years	months
Left on current	0	22
New fix term	5	0
amount left after(months)		22
Start	rate	End
£80,000	2.14%	£71,541
£81,600	1.64%	£72,483
amount left after(months)		60
£80,000	2.14%	£56,127
£81,600	1.64%	£56,076
Switch when ERC £0
Break even rate needed no fee)		38
£71,541	2.116%	£56,077

If you switch you will be ~£1k behind in 22months  but need a rate better than 2.12% to stay better off for the next 38 months.

if you overpay the rate goes up a bit hits 2.2% at around £725pm
if they won't let you add the ERC it goes to 2.14%



if we do a few test cases for your potential new rate in 22m over 28months

£69,877	1.50%	£53,051	£1,289.22
£69,877	1.75%	£53,554	£786.29
£69,877	2.00%	£54,061	£279.27
£69,877	2.25%	£54,572	-£231.88

if rates dip a bit then you could be ~£1300 worse off, if they creep up to around 2% its ~+-£250


Its not just a call on rates might go up it more will they go up to over ~2%(5y fixes)

You could look at the 3y fix in 22m, some lenders they are lower than 5y so give a little extra on the rate rise.

getmore4less

IAMIAM said:

Mine finishes about the same time, I wouldn't bother. Just apply in 6 months to complete in Jan 2024.

You have a lender that will hold a rate offer for over a year?

inkydolphin

getmore4less said:

inkydolphin said:

getmore4less said:

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

- LTV 29%
- rate of new fix 1.64% (5 years) - gives reduction in yearly payments of £216
  (or 1.39% with £999 fee (upfront or added to loan))
- staying with same lender (much easier due to changes in employment circumstances)
- 15 years remaining

I'm old enough to remember 17% interest rates - was young enough to be purely a saver though...

This is a case where it would have made sense to have tested the ditch the fix before now.
(when approaching a drop in ERC you can look a few months ahead and lock in)


Going with the 2% ERC on £80k and doing the ditch the fix calculation.

end 2023 going with Dec and end of this month to change,  22months left on the deal
(a few months out  won't change the result on these base numbers).

Also going with 60m for the new deal.

payment of £520  (based on £80k 15y 2.14%)  NO fee is better by £180

Mortgage	£80,000
payment	£520	ERC/FEE
rate	2.14%	£1,600
new rate	1.64%	£0
Time	Years	months
Left on current	0	22
New fix term	5	0
amount left after(months)		22
Start	rate	End
£80,000	2.14%	£71,541
£81,600	1.64%	£72,483
amount left after(months)		60
£80,000	2.14%	£56,127
£81,600	1.64%	£56,076
Switch when ERC £0
Break even rate needed no fee)		38
£71,541	2.116%	£56,077

If you switch you will be ~£1k behind in 22months  but need a rate better than 2.12% to stay better off for the next 38 months.

if you overpay the rate goes up a bit hits 2.2% at around £725pm
if they won't let you add the ERC it goes to 2.14%



if we do a few test cases for your potential new rate in 22m over 28months

£69,877	1.50%	£53,051	£1,289.22
£69,877	1.75%	£53,554	£786.29
£69,877	2.00%	£54,061	£279.27
£69,877	2.25%	£54,572	-£231.88

if rates dip a bit then you could be ~£1300 worse off, if they creep up to around 2% its ~+-£250


Its not just a call on rates might go up it more will they go up to over ~2%(5y fixes)

You could look at the 3y fix in 22m, some lenders they are lower than 5y so give a little extra on the rate rise.

Thanks so much for that - incredibly kind of you to go into so much detail. 

Griffin78

I'm tagging onto this thread as I'm in a ditch the fix conundrum...

HSBC Fixed for 10 years started in Aug 2018 at rate of 2.49%. Starting balance was £211,900 and term was 18 years.
Current balance is £178,000 on a property worth £600,000
Current monthly payment is £1208

The ERC is 5% over any of the allowed overpayments (which are upto 10% of balance at start of year). I know that the ERC in Jan 2021 was approx £8.5K so approx £8K now?

I think I would need a rate of below 1.8% to make it worthwhile, does that sound right?

inkydolphin

Thrugelmir said:

inkydolphin said:

getmore4less said:

inkydolphin said:

Hi. I'm after any thoughts at all on this as I have become stuck and unable to make a decision.

My current 2.14% fixed mortgage deal expires at the end of 2023. £80k outstanding balance. The ERC is currently about £2.5k.

Do I switch and fix, bearing in mind it will cost me £2.5k? New deal would cost less per month but not that much less, so it really is a gamble over future rate rises. I know there's no right answer (unless Michael J Fox is a registered user) but what would you do?

Thanks!

There is a right answer if you crunch the numbers properly.

Full information required not just outstanding amount and rate.

- LTV 29%
- rate of new fix 1.64% (5 years) - gives reduction in yearly payments of £216
  (or 1.39% with £999 fee (upfront or added to loan))
- staying with same lender (much easier due to changes in employment circumstances)
- 15 years remaining

I'm old enough to remember 17% interest rates - was young enough to be purely a saver though...

How are you going to fund the ERC and any other costs incurred in switching lenders? 

Because it's with the same lender I would have to pay ERC upfront rather than adding it on to the new mortgage. So would fund from savings. No other fees (unless I choose new mortgage with a fee, which I don't plan to).