Re-mortgaging a year into 5 year term - sanity check needed

Pocketsaver

Hi all,

I am looking for an independent opinion on if my logic to re-mortgage makes sense. I have no one in my life to talk personal finance besides the Mortgage Advisor. 

I bought this house 14 months ago (£290,000 December 2023) on a 40 year term with an initial 5 year term at 5.59% (75% LTV). I borrowed £215,000 and currently have £212,422 outstanding. That's £1,122.1 repayment per month and there's a 2% ERC (£4,246.84). 

Reviewing the rates after last week's cut and it's a lot lower in comparison. As I bank with Lloyds, I am eligible for their Club Lloyd's mortgage rates. Speaking to the mortgage advisor and I am considering re-mortgaging to one of the another product with the ERC put into the product. My reasoning for re-mortgaging is not only because the rate is cheaper, but I can also significantly reduce the term, and I can reduce the monthly financial commitment.

My options are:

1) 5-year initial term until approximately April 2030, 4.16%, £1,021.21 per month with £999 product fee upfront on a 32 year term. That's £100.89 cheaper per month and I am paying roughly 2.5 times more back in capital (£120 versus £270).

(Below I worked out) 

Interest Paid Over Initial Term	£            45,067.20
Starting Outstanding Mortgage	£          216,669.00
Capital Repaid Over Initial Term	£             16,205.40
Forecasted Outstanding Mortgage	£          200,463.60
TOTAL Repayment over Initial Term	£             62,272.60

 
2) 2-year initial term until approximately April 2027, 4.33%, £1,039.37 per month with £999 product fee upfront on a 32 year term. That's £82.73 cheaper per month while paying roughly double the amount in capital back each month (£258).

(Below I worked out)

Interest Paid Over Initial Term	£            18,744.00
Starting Outstanding Mortgage	£          216,669.00
Capital Repaid Over Initial Term	£              6,200.88
Forecasted Outstanding Mortgage	£          210,468.16
TOTAL Repayment over Initial Term	£            25,944.88

3) Stay with Barclay's until December 2028 (figures below represent 45 monthly repayments outstanding.

(Below I worked out)

Interest Paid Over Initial Term	£            45,094.50
Starting Outstanding Mortgage	£          212,422.16
Capital Repaid Over Initial Term	£              5,400.00
Forecasted Outstanding Mortgage	£          207,022.16
TOTAL	£            50,494.50

In table format: 

	Barclays (As-is)	Lloyds - 5 year	Lloyds - 2 year
Monthly Repayment	£              1,122.10	£        1,021.21	£        1,039.37
Interest Repayment Each Month	£              1,002.10	£           751.12	£           781.00
Capital Repayment Each Month	£                 120.00	£           270.09	£           258.37
Upfront Fee	£                        -	£           999.00	£           999.00
Interest Rate	5.59%	4.16%	4.33%
Outstanding Remaining Term	38 years, 9 months	32 years	32 years
Initial Term Period	45	60	24
ERC	2%	5% down to 1%	2%, 1%
Interest Paid Over Initial Term	£            45,094.50	£      45,067.20	£      18,744.00
Starting Outstanding Mortgage	£          212,422.16	£    216,669.00	£    216,669.00
Capital Repaid Over Initial Term	£              5,400.00	£      16,205.40	£        6,200.88
Forecasted Outstanding Mortgage	£          207,022.16	£    200,463.60	£    210,468.12
TOTAL	£            50,494.50	£      62,271.60	£      25,943.88

I am leaning towards the 2-year term over the 5-year at this moment. 


My questions to this forum are: 
1) Have I calculated this correctly? 
2) Does it make sense to switch? 
3) Which product makes more sense to switch to? I assume the 5-year term due to the fee. 

Any other feedback appreciated. 

Update - included 5-year term on 45 months so it ends the same time as Barclay's

	Lloyds - 5 year (45 month term)
Monthly Repayment	£                                     1,021.21
Interest Repayment Each Month	£                                        751.12
Capital Repayment Each Month	£                                        270.09
Upfront Fee	£                                        999.00
Interest Rate	4.16%
Outstanding Remaining Term	32 years
Initial Term Period	45
ERC	5% down to 1%
Interest Paid Over Initial Term	£                                   33,800.40
Starting Outstanding Mortgage	£                                 216,669.00
Capital Repaid Over Initial Term	£                                   12,154.05
Forecasted Outstanding Mortgage	£                                 204,514.95
TOTAL	£                                   46,953.45

Hoenir

If you switched to Lloyds 5 year. How does this compare to your current Barclays mortgage on a like for like basis over 45 months.  The way you've presented the numbers makes direct comparison extremely difficult. In 45 months time you'll be free to refix with no ERC. 

Pocketsaver

Hoenir said:

If you switched to Lloyds 5 year. How does this compare to your current Barclays mortgage on a like for like basis over 45 months.  The way you've presented the numbers makes direct comparison extremely difficult. In 45 months time you'll be free to refix with no ERC. 

Thanks for the response.

I've added the Lloyds 5 year but reduced to 45 monthly payments so it ends at the same time. 

I'd reduce the capital by £2,507.21 (Barclay's £207,022.16 versus Lloyd's £204,514.95). I'd also pay £3,541.05 less over the 45 months. 

Hoenir

Pocketsaver said:

I'd reduce the capital by £2,507.21 (Barclay's £207,022.16 versus Lloyd's £204,514.95).

Those are the figures I'd always focus on. 

In remortgaging to a new lender you also need to factor in a mortgage redemption fee (Barclays) , valuation fees and legals fees. Conservatively that's at least another £1,000 to allow for. 

For the product fee and remortgage costs above you'll lose around £250 in interest over the 45 months. 

The net gain would be some £1,250 lower. 

Personally I'd opt for the 5 year rather than the 2 year LLoyds rate.  My thinking here is that you might as well overpay by the difference between the two for 24 months. That's then another £436 knocked off the capital balance owed plus whatever interest it saves you. 

Better to base decisions on known facts than toss coins. Who knows interest rates might have increased by the time you come to refix again. 

To make real inroads your mortgage debt overpaying is the key.  Over 30 years at 4% a interest rate every £1 you owe is going to cost you £1.20p in interest.  If interest rates were to remain static at 4.16% then over the shorter 32 year term your interest bill is still in the region of £175,000. 

Pocketsaver

Thank you for the response and the engagement. This has swayed me to go for the 5 year. 
I'll double-check with Barclay's any other fees I may be liable for outside of the ERC.

Hoenir

Pocketsaver said:

Thank you for the response and the engagement. This has swayed me to go for the 5 year. 
I'll double-check with Barclay's any other fees I may be liable for outside of the ERC.

Been my pleasure. There's quite a differential between what you are currently paying and the interest rate you could switch too.  Often the maths isn't as decisive. Once all the costs get factored in. The 40 year mortgage term is certainly worth shortening. 

BikingBud

Unsure of your figures as you appear for your Lloyd's starting figures to owe more than your initial loan, £216669 v £215000 and you start dates seem different, does that mean you anticipate your current deal running until Mar 25 and then transfer to either 2 yrs or 5 yrs fixed from Apr 2025 onwards?

If so then the starting figure should be the same ie £212422 ending the current deal after another 2 months and then going onto new rates, you can make an estimate (guess and change) of what might come after the 2 year fix and see where you might be in Mar 2030 (Lloyd's 5 year fix end)

I could get some of your figures to work but wasn't sure I was getting your intent/assumptions or how you were inputting figures but what was clear is the crazy amount of interest that is payable if it runs full term, potentially up to £326k   

I would recommend trying to use this tool and changing the Interest Rate Manual Column on the Monthly Table Tabs to tinker and make sure you get the figures for what you intend to do. 

As you currently are 5yr fix @5.59% changing Dec 2028 to 4% follow on:

Or swapping from current deal in Apr 2025 to 5 yr fix @4.16%:



Or swapping from current deal in Apr 2025 to 4.33% for 2 years with 6% follow on:



And then with a 4% follow on:


All things said the better deal does appear to be the 5 yr fix but will be subject to follow on rates after the 2yr 4.33% fix. Hence you need to tinker and see what assumptions suit you or match your expectations. Do not forget to add in the Barclay's ERC ~£4250 to these projections. 

Other than the original these illustrations are all based on 32 yrs hence the £1209 starting payment but you will need to adjust the term to suit and you can add overpayments in different ways so again presenting something a little different that you will need to understand  and control.

These do not include additional costs that might be payable by going to another provider, as already highlighted but before you jump and incur costs that might be avoidable can you get any better deal with Barclays, even if you have to pay the ERC?