To pay ERC or stay with Barclays on a two part mortgage.

laurajanelolly

So we ported our mortgage last year with Barclays and now have two parts on different rates and terms. At the time it was peak pandemic and many rates had been removed. the 5 year fix at 3.30% was the only option to port and borrow the extra which we weren’t particularly thrilled about. 

Part 1 - £160k 2.05% 20 years and 8 months, fix rate ends Aug 22 
Part 2 - £93k 3.30% 28 years and 10 months, fix rate till March 26 

Part 1 fix is about to run out. Rate switch options are a bit rubbish as we would prefer a 5 year fix.  Every option makes our monthly payments higher and interest rate higher. Our monthly payment is already pretty high and we would like to try and lower this to compensate rising living costs. 

LTV is currently 73% from recent valuation of property. We would like to take some money out against the property to do some home improvements of £15K. This takes LTV to 78% so looking at 80% mortgages. 

Lloyds is offering us a 5 year fix at 2.32% with the extra £15k for home improvements. The product fee is £1499 but we will also have to pay and ERC of £2805 to leave part 2 of our mortgage early which we can add to the mortgage. Additionally they recommend increasing our term up to 33 years. This is more than we thought but monthly payments are £227 less so we can always overpay a bit. We also get £250 cash back. 

Barclays have suggested keeping the part 2 as is and borrowing extra on the part 1 as a remortgage. This way there is no ERC but we may have to pay a product fee depending on what we go for and for better rates. They said term needs to be a minimum of 28 years but were wooly on what the rate would be until we actually had an appointment. Looking online they have no 80% LTV mortgages for a 5 year fix but they have an 85% with a rate of 2.55% and fee of £999. Initially she said our payments could be £60 less than what we are currently paying but the base rate rose since that conversation so it's probably less now.    

Sorry for so much info but really all I want to know is what is the best option. Should we pay the ERC to leave the 3.30% and repackage or stick with Barclays   

Thrugelmir

Purely said as an observation. You wish to compensate for the rising cost of daily living. Yet your proposal includes borrowing an additional £15k, extending your mortgage term and paying over £4k in ERC's and product fees. In addition you need to factor in the legal , valuation and mortgage exit fees involved in remortgaging to a new lender.  In 5 years time you'll most likely then face exactly the same challenges as now. A greatly increased cost of borrowing.  Kicking cans down the road only lasts so long. 

simon_or

Looking just at the interest rate difference on the £93,000 part and assuming 5 years left, moving to Lloyds 2.32% from Barclays 3.3% would save you about £900 in interest annually so about £4,000-4,500 over 5 years. Add on the saving from the 2.32% over the Barclays 2.55% for the £175,000 part and the savings go a bit further up, by about £2,000 over 5 years.

If you look at it that way, the £4,000 ERC seems worth paying.

This is just an EXTREMELY BASIC way to calculate it and ignores product fees, reducing loan size, overpayments, future interest rates, etc. so might not be giving you the right answer.

If you are going for Lloyds, do it sooner rather than later as their rates will go up soon.

laurajanelolly

Thanks Simon_or. In simple terms that's what I wanted to check. 

I know as the above poster says we are still looking to borrow more which goes against the whole cutting costs as essentially we are adding more and extending the term so longer period of interest. Hopefully we will be making overpayments though and will try to reduce the term after 5 years at fix end. The product fee was included in that £4000 and there are no other fees. If we just did a rate switch we are paying more a month and the rates stays at 3.3% on one and goes up on the other. Long term that might mean we pay faster as term stays the same but it pushes our monthly payments too high. Then we will have no money to do improvements needed or potentially live with rising costs. It's about which is the lesser of evils for now. 

getmore4less

if you overborrow on part one you can overpay part two.

Remember Barclays have generous overpayment options(more than the 10% so you can attack part 2 
effectively moving some from 3.3% to 2.55%

If you can stick to 75% then Barclays have a 7y fix  2.26% £749 fee 

lowering your payments.

0.5% will reduce them by £40-£50 pm, adding 5 years they drop £80pm

with payments around £792+£417=£1209

to drop that to say £1k  with the  Lloyds at 2.32% over 5y needs 32y2m

£253k + £15k +  £1499 + £2805 - £250= £272,050 

over 5years

amount	rate	payment	owing
£272,050	2.32%	£1,000.83	£241,870.29

Barclays  taking the same total and using £15k for improvements and £999 for the fee and move £3300 off the 3.3% rate

£179,300 2.55% 
£89,700 3.3%

same term it looks like 

amount	rate	payment	owing
£179,300	2.55%	£681.24	£160,109.48

amount	rate	payment	owing
£89,700	3.30%	£377.43	£81,182.83

total payment  £1,059.
total owing   £241,292.

change the payment on the Lloyds to the Barclays total.

amount	rate	payment	owing
£272,050	2.32%	£1,059.00	£238,173.65

Even with the extra fees save around £3k over the 5years.