Can I lock in a refix early and pay ERC when it takes effect?

ElwoodBlues

Got about 95k outstanding on mortgage with Natwest. I've heard you can lock in a fix up to six months before current deal ends with Natwest? But my current fix runs until Dec 2023, so 15 months away. ERC will drop to 1% from Jan 2023, which I'd be willing to pay to get another fix earlier. But is is possible to lock in a new fix now that would take effect in 6 months time, and then pay the ERC at that point. Otherwise, I'm looking at a 2% ERC (so just under 2k), to refix now. But also, current interest rate is 2.4%, so taking a new fix early also looses the next 15 months at that rate (looks like about 4% now, but I expect fixes will be 5% or higher by next Jan).

I've also got 50k in savings, that was supposed to go towards extending the house. Might have to can that idea now, and throw it all at reducing the mortgage instead. But that means my kids have to carry on living in tiny box rooms forever more. 

catclaires

I would phone NatWest to check. Product switches seem to be a bit weird with their own rules when you're still in your initial fixed period and wanting to come out of it early. We've just had similar with Nationwide and had to pay the ERC straight away but also had to go on to the new product/rate at the start of the next calendar month - we thought we'd at least be able to reserve it 3 months in advance but couldn't!

I would also look at other providers if NatWest turns out not to be very flexible. We paid the ERC with Nationwide and reserved the new rate but then cancelled it again and got the ERC refunded as in the meantime, we had also applied for a remortgage at a better rate with Lloyds and got their offer through very quickly - and for the Lloyds one, we don't have to complete until the end of February (and presumably not pay the ERC to Nationwide until that point either), which will save us quite a bit of interest over the Nationwide option. It is of course more hassle to change provider, but it's all gone quite quickly/smoothly so far (touch wood!).

ElwoodBlues

From what I've seen I don't think this is going to be possible - if I refix now, I'll have to pay the ERC (£1800 if I use my overpayment allowance first).

However, if mortgage rates do go up to 6% towards the middle-end of next year, then I'll be about £4500 better off (in 5 years time) to fix now at 4%. Even if rates only go up to 5% then I'll still be over £1200 better off to fix now. And If rates next year are only up to 4.5% (which they probably will be in a matter of days!) then it works out about the same as refixing now at 4%.

So (crystal ball time) what's the likelihood of rates being less than 5% by next summer? 

london21

ElwoodBlues said:

Got about 95k outstanding on mortgage with Natwest. I've heard you can lock in a fix up to six months before current deal ends with Natwest? But my current fix runs until Dec 2023, so 15 months away. ERC will drop to 1% from Jan 2023, which I'd be willing to pay to get another fix earlier. But is is possible to lock in a new fix now that would take effect in 6 months time, and then pay the ERC at that point. Otherwise, I'm looking at a 2% ERC (so just under 2k), to refix now. But also, current interest rate is 2.4%, so taking a new fix early also looses the next 15 months at that rate (looks like about 4% now, but I expect fixes will be 5% or higher by next Jan).

I've also got 50k in savings, that was supposed to go towards extending the house. Might have to can that idea now, and throw it all at reducing the mortgage instead. But that means my kids have to carry on living in tiny box rooms forever more. 

With current lender they won't let you make application without first paying the ERC.

If you were to move to another lender, then will be possible if deal is valid for 6 months. 

ElwoodBlues

london21 said:

With current lender they won't let you make application without first paying the ERC.

If you were to move to another lender, then will be possible if deal is valid for 6 months. 

So I'd have to pay the ERC blind and then they might not even offer me anything? Would they even tell me what rates/foxes are available before I pay the ERC?