Remortgage now and pay penalty or wait until you can change for nothing

louise_88

Hi

We have a 7 year fixed rate deal that is due to end December 2023 but if we want to swap now we have a penalty of £4,000, we can look for another deal with the same bank again next June (2023) but if we want to go to another bank/building society we can start looking in September 23.  Obviously we are not going to save £4,000 from now until next June but with the way the rates are going, is it worth fixing again now for 5-10 years or hold off until next June?

Thanks.

ACG

5 year fixed rates are in some places cheaper than 2 year fixed rates. The expectation seems to be rates will rise this year and then level off for the foreseeable. But it is all guess work, you need to decide if it is worth taking a £4k hit for certainty or holding off to see what your options are next year. 

I am paying around £2k in ERCs to secure a new 5 year fixed rate. But I work in the mortgage world and my income can fluctuate. So I would rather take a £2k hit and keep my repayments as low as I can. I personally think the loss will be a lot lower once all is said and done, but I wont know that until next year and I can see what my options would look like. 

sammyjammy

Nobody can answer that question for you, how big is the mortgage?  How much would mortgage rates need to go up in that period to make it worth paying out that £4k now?  Do you have £4k or would you need to increase your mortgage in which case you'll need to factor that in.

louise_88

I know nobody can answer that question, I was just curious if other people are in the same situation what would they do.  The mortgage is £76k with just under 17 years left.  I do have £4k in savings but we have paid twice to come out of a deal early for a better rate.  On one hand some people say to hold off and others say to fix now.  We are overpaying the mortgage hopefully to get a better deal when ours ends but thank you all for your advice.

ACG

On a £76k mortgage, I dont think I would be paying a £4k ERC. 
Maybe work out what your repayments would be now on a 5 year fixed rate and what they would be if they went up by say 0.5%/0.75%/1% to work out how much more it will cost you each month.

It is going to have to go up quite a bit in order to cost more than £4k so unless your priority is lower repayments over overall cost, I doubt it makes sense. 

Thrugelmir

As the mortgage balance falls then it becomes harder to achieve savings. The opportune thing to do is overpay by whatever you can afford. What interest rate are you currently paying? 

louise_88

We are paying 1.88%, we fixed in 2016, monthly payments are approx £516, on a 10 year fix we could get £458 with our current bank but in 12 months we could fix again and not pay the £4k ERC.  I'm overpaying the mortgage by £250 a month which isn't much but better than nothing.  When I look at remortgaging the LTV is under 23% which is good.