Another jump ship on current fix/ERC post

Marmot

Hi, just wondering if I could get people's opinions on whether exiting my current fix wouldn't be madness and which of of the offered rates looks like the best option... (understand we don't have a crystal ball etc...   )

Mortgage balance is currently £145,000 with an LTV of around 36%.  I could potentially make an overpayment of £5k to bring my balance down to £141,000

I'm currently on a 2 year fix which expires next June with a rate of 1.19%.

The slight issue I have is that I'm in a new job and the probation period is 6 months, I'm 3 months in so I think I will have to stick with my current lender.

I've been in touch with my current lender and the ERC today (if I did that overpayment of £5k) would be around £840.

And they've offered me the following rates:

3 year fix with fee (£999) 3.39%
3 year fix with no fee 3.84%
5 year fix with fee (£999) 3.36%
5 year fix with no fee 3.69%

Hopefully that gives enough info?  Any thoughts gratefully received.

Marmot

MXMike

As a mortgage broker I'm seeing a number of people consider the same thing. This is a difficult question to give a clear answer on and personally this should be decided based on how concerned you are about rates rising further and whether or not you can manage a higher payment.

Currently I'm looking at the payment based on today's rates, them I'm adding on what the client feels it may rise by (there is absolutely no way to know what will happen with rates so I can only deal with individual concerns) to demonstrate the difference in payments and then calculate the difference over the fixed period to see if it represents a possible saving versus the ERC fee.

Problem is what happens to rates is all guess work and is dependant upon external pressures that are too unpredictable right now.

If I was you I'd work out a comparison, base rate is 1.75% with economists predicting it may rise up to 3%, right now perhaps using a 1% rise to bench mark your concerns may be prudent although again absolutely nothing can be guaranteed as far as rates go.

If you feel concerned about a 1% rise and how it may impact you personally I would say that there is the reason to exit early as you are buying security for your budget. If you are not concerned about the rate increases then it may not be worth paying the ERC as it is a large amount and no-one can guarantee this will financially pay off.

In terms of how long to fix for again I wouldn't advising basing it on a when will they go down guessing game. As you'll see on value for money the 5yr rates are better value but you will be tied in for longer. Base your decision on your personal plans i.e. do you plan to move and when, are you expecting a large change in outgoings or income. If the answer is 5 years or longer for these then fixing for 5 may be best to sure up your finances in the mean time. If you have a change expected in 3 years then reviewing your mortgage then may save you another ERC fee as porting a mortgage is not always the right option.

Make the decisions you take about whether they are right for you, your budget and your plans as it will more likely pay off, try to avoid second guessing rates as we're more likely to be wrong 

TheAble

In both cases it looks to me like you'd pay less interest with the fee.

By switching early you'd pay around an extra £2k in interest vs your 1.19%, plus the erc.

Whether you think this is worth it depends on how much you think rates will rise between now and June.

A final point is that you may be able to lock in a new rate a few months before June - your lender will confirm.

Marmot

Thanks so much for the comments, much appreciated. I'll do a bit more thinking about it & try to reach a decision.

getmore4less

Calculate the rate needed at the end of the current fix to break even over the term if you switched now.

Relatively easy calculation.

Gives an extra data point for the guesswork.

The sweet points for ditching fixes was around 6-12months ago after rates started climbing from the all time lows last sept.