Should I pay to end my fix early?

propertyhunter

Just listening to LBC and they have suggested that the markets are pricing in a 1.5% interest rate rise before or at the next MPC meeting. Make of that what you will. 

CSL0183

Jordanparly92 said:

CSL0183 said:

Jordanparly92 said:

If I can jump on this too 

current balance 64,000 mortgage via Lloyds fix up for renewal August 23 

ive approached a mortgage advisor who’s recommended a 5 year fix via nationwide 

Current rate is 3.37 which increases to 4.24 

it’s the upfront fees that are giving me second thoughts personally 

the legal expenses are covered but we have 

650 to break my fix with Lloyds 
395 for the mortgage broker

and pro rata makes the first month nationwide payment 764

i really have no idea if renewing is the best option or not

if I just leave my fix to end what could my payments look like come next September 

How much is your current monthly payment and remaining term?

Hello currently monthly payment is £490 I have 14 years left on the term 11 month left on the fix

thanks

Figures not fully accurate as they are based upon taking out a £64k mortgage today @ 3.37% for 14yrs. 

£64k @ 3.37% over 14yrs = £478
£64k @ 4.24% over 14yrs = £506

Your figures will be slightly different but see it as around a £30pm increase. 

Now if the experts are right and this time next year the BOE BR is at 6%, thus mortgage rates up at around 8% then the maths would be 

£64k @ 7% over 14yrs = £599
£64k @ 8% over 14yrs = £634
£64k @ 9% over 14yrs = £671

Of course, this time next year your balance will be less and the term will be less but this just shows you the differences if it was today. 

You could potentially be around £190pm worse off if you leave it or £30pm worse off if you act now. You would factor in that ERC penalty of £650 into the maths too. (If you went with a 5yr fix, then just a little over £10pm, 2yr fix about £27pm) I wouldn’t pay for a mortgage advisor, you should be able to switch with the lender directly for nothing after a consultation with them. 

Orchid96

CSL0183 said:

Orchid96 said:

Hi @Mark_84, 

My situation is almost similar to yours - ERC of almost £10.5K.
Even though my ERC is 2%, my mortgage is for £530K.
I am still thinking of paying this ERC and move to a 10year product at 3% even though I have almost 16 months left in my current product (1.24%) - details are here - (https://forums.moneysavingexpert.com/discussion/6379178/should-i-pay-erc-of-10500/p1).

The market has changed considerably since you started that thread. What is the current 10yr fix value if you were to look at that product today? 

They reckon 4% by year end and 6% by mid 2023 based on the Mini budget last Friday; the plunging £, the Gilt rate shooting up and inflation yet to peak. 

At least you have a 3% lock which is very good, you can see what happens between now and then. BOE next meeting early November Altho they may step in sooner if the £ plummets further. 

It is a relief that I have 3% rate secured until Dec mid. But like many others, started worrying about lenders withdrawing the offers. Hopefully Barclays will honour all the mortgage offers

Rural_Life

Rural_Life said:

Hi, looking for advice (yes I will look into accredited financial advice but this thread is for normal options in the mean time). 

Bought a house, mortgage circa £150k, 2.09% 5yr fix. 

Have OP regularly and currently sitting at £125k and 1yr left on the fix.

When bought me and partner bought worked 40hr weeks (full time) now we only work part time (covid opened our eyes) 25hr weeks each still afford to OP etc but now worried about affordability checks as a result. 

1% ERC as into final year of fix.

Would you:

Bail, pay the 1% and look to fix

Or:

Wait it out until end of fix

For better or worse I have decided to hold tight rather than jump ship. Now a 100% gamble because my plan is to overpay by £10-15k along with my next year worth of normal payments which will bring my remortgage amount down to £100k max thus a better LTV and no exit fees.

This decision was made on the basis that so much can change within this year and I will reassess every 3 months and keep things fluid 🤞 might be a gamble but I hope the odds will be in my favour.

Good luck to each of you, no matter the decision you take 🙏 

Mark_84

I must admit I am getting more nervous but hoping to hold out until 6 months before to avoid paying the £8,200 erc 

Would it cost me to lock in an offer now if I decided to wait until March and see how the market is?

I currently have £165,000 left on my mortgage which the current fix rate of 2.34% ends in September 2023.

I would need to pay £8,200 early repayment Charge. Likely I would need to add this to the new mortgage.

The way I have calculated is the difference in monthly payments. 

30 year fix now with a new mortgage at £173,000 to cover the erc at 3.73% works out at £799 per month. 

If I remain on my current mortgage and I only achieve a rate of 6% in March then this would work out at roughly £977 per month.

The difference between the two payments is £177 which over 4 years is £8496. But if I deduct the difference of one year on my current rate it would be around £2,000 less so closer to £6500.

I think I have worked that out right.. so dosent seem to be worth paying the erc?

CSL0183

Mark_84 said:

I must admit I am getting more nervous but hoping to hold out until 6 months before to avoid paying the £8,200 erc 

Would it cost me to lock in an offer now if I decided to wait until March and see how the market is?

I currently have £165,000 left on my mortgage which the current fix rate of 2.34% ends in September 2023.

I would need to pay £8,200 early repayment Charge. Likely I would need to add this to the new mortgage.

The way I have calculated is the difference in monthly payments. 

30 year fix now with a new mortgage at £173,000 to cover the erc at 3.73% works out at £799 per month. 

If I remain on my current mortgage and I only achieve a rate of 6% in March then this would work out at roughly £977 per month.

The difference between the two payments is £177 which over 4 years is £8496. But if I deduct the difference of one year on my current rate it would be around £2,000 less so closer to £6500.

I think I have worked that out right.. so dosent seem to be worth paying the erc?

Many lenders are approaching that now, there’s another 3 meetings between now and then. That 3.73% is competitive just now but as you say, your ERC is high. 

You could try fixing in a rate now with another lender and taking advantage of the 6 month grace period and then holding fire to March before making a decision. That way you are 6 payments down the line. 

Tough one. 

Craig_1988

Rural_Life said:

Rural_Life said:

Hi, looking for advice (yes I will look into accredited financial advice but this thread is for normal options in the mean time). 

Bought a house, mortgage circa £150k, 2.09% 5yr fix. 

Have OP regularly and currently sitting at £125k and 1yr left on the fix.

When bought me and partner bought worked 40hr weeks (full time) now we only work part time (covid opened our eyes) 25hr weeks each still afford to OP etc but now worried about affordability checks as a result. 

1% ERC as into final year of fix.

Would you:

Bail, pay the 1% and look to fix

Or:

Wait it out until end of fix

For better or worse I have decided to hold tight rather than jump ship. Now a 100% gamble because my plan is to overpay by £10-15k along with my next year worth of normal payments which will bring my remortgage amount down to £100k max thus a better LTV and no exit fees.

This decision was made on the basis that so much can change within this year and I will reassess every 3 months and keep things fluid 🤞 might be a gamble but I hope the odds will be in my favour.

Good luck to each of you, no matter the decision you take 🙏 

Have you factored in the possibility house prices could drop significantly in to your LTV assumption?

Rural_Life

^^ yeah, I've looked at both at 10 and 15% decrease in house prices that's why the 100k or under is my magic number so to speak.
My funds are sitting in a fixed savings pot which doesn't mature until December so that is when I'll reassess and do it regularly. 

I think holding out is where I'm currently at

Mark_84

CSL0183 said:

Mark_84 said:

I must admit I am getting more nervous but hoping to hold out until 6 months before to avoid paying the £8,200 erc 

Would it cost me to lock in an offer now if I decided to wait until March and see how the market is?

I currently have £165,000 left on my mortgage which the current fix rate of 2.34% ends in September 2023.

I would need to pay £8,200 early repayment Charge. Likely I would need to add this to the new mortgage.

The way I have calculated is the difference in monthly payments. 

30 year fix now with a new mortgage at £173,000 to cover the erc at 3.73% works out at £799 per month. 

If I remain on my current mortgage and I only achieve a rate of 6% in March then this would work out at roughly £977 per month.

The difference between the two payments is £177 which over 4 years is £8496. But if I deduct the difference of one year on my current rate it would be around £2,000 less so closer to £6500.

I think I have worked that out right.. so dosent seem to be worth paying the erc?

Many lenders are approaching that now, there’s another 3 meetings between now and then. That 3.73% is competitive just now but as you say, your ERC is high. 

You could try fixing in a rate now with another lender and taking advantage of the 6 month grace period and then holding fire to March before making a decision. That way you are 6 payments down the line. 

Tough one. 

The 5 year rates have now increased to about 4.43% so the maths doesn’t really add up paying the erc and remortgaging early….

armadilloF150

If your mortgage is small enough in relation to your property's value, have you considered getting an additional mortgage?

My original mortgage with Barclays was at 2.49%. When interest rates dipped further, I took out a second smaller mortgage at 1.5% (bringing the weighted average down to 2.2%) and I overpay only on the original mortgage to reduce that average further.

Your circumstances are different, but you could lock in a chunk of borrowing now, reduce the size of your existing mortgage when it expires and therefore reduce the damage of getting a bad rate at remortgage, because it will be offset by the second mortgage.

Could be worth discussing with a broker.