Should I pay to end my fix early?

brownbagsFTB

I’m hedging my bets and holding on too. Took out a 90% LTV a year ago over two years (the plan being I could switch once my LTV was lower and get a better rate) this backfired a bit but I still get to enjoy my low rate for another 12 months by which time the landscape will be different (for better or worse). I can’t switch as my ERC is around £3000 and the rates my lender is offering for product transfer is already at 6% +. My plan is to pay off the credit card spend and finance agreements (home improvement debt) to ensure maximum disposable income by next October then go on a tracker for a few months potentially. The consensus is that rates will spike short term but then level out, just gotta keep everything crossed they don’t go up to ridiculous levels (which personally I can’t see happening as thousands would lose their homes) good luck! 

fastenough

With no way of knowing what will happen with rates over the mid to long term it may essentially come down to luck as to whether one course of action will end up cheaper than another.

Using a mortgage comparison app such as Mortgage Smarty to run the calculations for different future rate scenarios, loan amounts and ERCs would at least give you the figures for those eventualities and may help you in deciding your course of action.

Worth bearing in mind things can change quickly & unexpectedly for example while some may have had an inclination rates were about to go up it's fair to say not as quickly or by as much as they have/continue to.

Orchid96

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?

I do the calculation in a different way. I think the difference in monthly payments may not give details about the additional interest  payment correctly. In your case with £165000 left on the mortgage the additional interest payment per year will be 2.27% x £165K =  £3745 (as the difference in interest rate is 2.27% = 6% - 3.73%). This is not completely correct as with every monthly payment the interest is calculated on the remaining principal maount, but may give a better picture. The monthly payment doesn't go up by £312 (=3745/12) as the principal part of the mortgage collection is reduced during the initial years. 

The best way to know this is to look at the outstanding amount of the mortgage after the fixed term in both cases.

watsoa42

Hello, I currently have 7 months left on my current mortgage (60% LTV £100,000 remaining balance ) with nationwide they say the early exit fee (£1000)  will remain until 5 months before would it be best to pay that and secure a new fixed rate now or wait and risk the interest rate being higher than the cost of the exit fee.
thanks

K_S

watsoa42 said:

Hello, I currently have 7 months left on my current mortgage (60% LTV £100,000 remaining balance ) with nationwide they say the early exit fee (£1000)  will remain until 5 months before would it be best to pay that and secure a new fixed rate now or wait and risk the interest rate being higher than the cost of the exit fee.
thanks

@watsoa42 What is the end date for the current fix? If it's actually inside 7 months then you have lenders like NatWest that give 6 months validity plus 1 month extension which should help you avoid ERC and secure a current rate. When your Nationwide product-transfer window opens, you can compare that to the remortgage offer you have in hand and then decide whether to go with the remortgage (new lender) or the product-transfer (Nationwide).

watsoa42

Hi, Yes it's 28th May 2023, although other lenders have more competitive rates we was looking to stay with nationwide for the simplicity of the switch. 

Rural_Life

watsoa42 said:

Hello, I currently have 7 months left on my current mortgage (60% LTV £100,000 remaining balance ) with nationwide they say the early exit fee (£1000)  will remain until 5 months before would it be best to pay that and secure a new fixed rate now or wait and risk the interest rate being higher than the cost of the exit fee.
thanks

It is all guess work and a gamble no matter what you choose.
We could find rates stabilising over the next few month or change in either direction. 
If you fix now and then that rate seems high in 6months time then would you be kicking yourself? Or you don't fix and the rates increase further could you afford the risk?

No easy answers for anyone in this boat but we all have to make choices based on our gut, information provided, financial situation and our personal relationship with risk.

Good luck with whatever you decide

matt1983

Nationwide are telling me i cant do reserve a product transfer until January - my current fix ends April 30th. 

Is this correct? Id read online you can do this within 6 months now?

K_S

matt1983 said:

Nationwide are telling me i cant do reserve a product transfer until January - my current fix ends April 30th. 

Is this correct? Id read online you can do this within 6 months now?

@matt1983 They sent out a notification to brokers a few days ago about changes in the PT window. Going down from 6 to 5 then 4 months. Not sure if it applies to direct PTs but from what you've said, it might be the same.

https://forums.moneysavingexpert.com/discussion/6399061/nationwide-rate-switch-some-existing-customer-rates-going-down-from-tomorrow

jonnypb

matt1983 said:

Nationwide are telling me i cant do reserve a product transfer until January - my current fix ends April 30th. 

Is this correct? Id read online you can do this within 6 months now?

They suggest it's 5 months according to this Apply to switch mortgage | Nationwide

Log onto your online account and check?