Product switch options - worth it or not?

Bored

My mortgage balance is currently £112,848 and I have a tracker mortgage with Nationwide at 5.39% (base rate + 1.14%) until December 2023. As it's a tracker, I can change at any time without penalty. Currently on the portal, I am being offered the following: 2 year tracker - 4.49% (base rate + 0.24) - £999 product fee upfront or added to loan. 

Is it worth paying the £999 product fee to switch to this lower rate tracker or should I stick with my current one?

I'm also being offered 4.24% for a 2 year fix with a £999 product fee but I'm not sure I will stay here for the full 2 years and I don't know if the penalty would wipe out any savings if I were to sell before the 2 years is up. Porting isn't an option as I would likely be moving abroad if I did sell rather than buying a new property.

housebuyer143

I would work out the difference in monthly payments between what you are paying now and the new tracker and then divide the 999 fee by 24 months and add that to the lower of the payments. If it works out cheaper each month then I personally think it's worth switching.

I tend to calculate the cost of fee like this rather than over the loan term because most people remortgage at the end of the fixed period and probably pay a new fee. 

Just check though as lots of trackers still have ERCs.. Your new one might also.

alanyau88

Over the full 2 years you would save about £200 from using the new 4.49 rate.  If you definitely know you're going to move within those 2 years, my opinion is not to move to the 4.49 rate and stick with 5.39 rate as you would probably not save anything.  Just do the maths yourself for every option.

Bored

Okay so my current mortgage payment is £680.28 versus £621.04 for the new tracker (if I pay the £999 fee up front), which is a saving of  £59.24 a month. Over the 24 months that's a total savings of £1421.76 minus the £999 product fee. If I sell before 18 months then I'll lose money on it or break even.

housebuyer143

Bored said:

Okay so my current mortgage payment is £680.28 versus £621.04 for the new tracker (if I pay the £999 fee up front), which is a saving of  £59.24 a month. Over the 24 months that's a total savings of £1421.76 minus the £999 product fee. If I sell before 18 months then I'll lose money on it or break even.

999 / 24 is £41.5 a month. So you literally save £17.5 a month or there abouts. It's still a saving but enough to make it worth your time? That's your call. 

IAMIAM

Why not just fix and pay the ERC of 1% (£1100) if needs be when moving? ERC vs a Tracker with a £999 fee is practically the same in my opinion on a 2 year basis

housebuyer143

IAMIAM said:

Why not just fix and pay the ERC of 1% (£1100) if needs be when moving? ERC vs a Tracker with a £999 fee is practically the same in my opinion on a 2 year basis

But the fixed also has a fee, so that's an additional £1100 if they need to leave early. Yes they save a few pounds by being fixed a little lower than the tracker, but I don't imagine the saving negates the ERC, unless base rate increases massively.

IAMIAM

The difference between the tracker and fix will increase by circa 0.5% (at least) over the two years.
I think trackers are not worth it now the BOE will increase again probably at least twice over the two years, the difference in rates will become 1% and that including paying a 1% ERC means the two year fix will become cheaper than a tracker.

Bored

IAMIAM said:

Why not just fix and pay the ERC of 1% (£1100) if needs be when moving? ERC vs a Tracker with a £999 fee is practically the same in my opinion on a 2 year basis

This is another possible option. I'm being offered 4.59% 2 year fixed without a product fee which is £627.49 per month.