Switching mortgage half way through a 5 year fixed rate.

I was just catching up with a friend on Zoom, he was asking how our house hunting was going.

We got onto discussing his situation, he has a master plan to move in five years as his wife is in the first year of retraining as a nurse. He is smack bang in the middle of a 5 year fix rate at 3.19%, based on the equity he has on his property he could comfortably secure a 75% LTV with his current lender, Nationwide at 1.89%. Given that he would be happy to tie in an additional 2.5 years beyond the end of his current deal, would a lender normally allow a customer to switch mortgage in the scenario described?

Replies

  • EimearFEimearF Forumite
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    Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 
    Light Bulb Moment 13/09/17: Non- Mortgage Debt £42295; 01/04/19: £13645; 01/10/19: £9707; 01/11/19: £5525; 14/01/20: £883
    27/01/20: DEBT FREE!!!

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  • tommyedinburghtommyedinburgh Forumite
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    EimearF said:
    Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 
    Yeah, he text me to say that it looks like he has a 3% ERC. If they waved the charge they'd get an extra two years business but I'm sure they won't see it like that.
  • Bob~24601Bob~24601 Forumite
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    Theres no motivation for the lender to allow them to come out early. If they do they earn less money. 

    The purpose of fixed rate is knowing exactly how much you will pay for so many years, if you wanted flexibility then fixed rate isn't good. 

    Had the interest rate increased so much higher would you be offering to pay more? 
  • tommyedinburghtommyedinburgh Forumite
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    Bob~24601 said:
    Theres no motivation for the lender to allow them to come out early. If they do they earn less money. 

    The purpose of fixed rate is knowing exactly how much you will pay for so many years, if you wanted flexibility then fixed rate isn't good. 

    Had the interest rate increased so much higher would you be offering to pay more? 
    Would you? 
  • EimearFEimearF Forumite
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    If he was within 6 months of the end of the fix they would likely waive the fee but they are pretty strict outside of that timeframe. 
    Light Bulb Moment 13/09/17: Non- Mortgage Debt £42295; 01/04/19: £13645; 01/10/19: £9707; 01/11/19: £5525; 14/01/20: £883
    27/01/20: DEBT FREE!!!

    Mortgage Free Wannabee: £58595 to pay by August 2025
  • ThrugelmirThrugelmir Forumite
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    Probably end up porting the existing product then topping up with an additional one. At 3.19% every incentive to overpay the current mortgage. 
    It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." — George Soros
  • dimbo61dimbo61 Forumite
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    So he has a master plan to move in 5 years.
    Nurse training takes 3 years and then 2 years of pay rises.
    He should stick with the current fix and overpay every month 
    Simple really.
    No point in paying ERC and new mortgage fee 
    I doubt the savings on the new deal will cover the costs.
  • tommyedinburghtommyedinburgh Forumite
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    dimbo61 said:
    So he has a master plan to move in 5 years.
    Nurse training takes 3 years and then 2 years of pay rises.
    He should stick with the current fix and overpay every month 
    Simple really.
    No point in paying ERC and new mortgage fee 
    I doubt the savings on the new deal will cover the costs.
    Yeah, he'd literally be £250 better off it seems.
  • ACGACG Forumite
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    EimearF said:
    Its likely that the lender would levy an Early Redemption Charge usually 3-5% of the balance. This would wipe out a lot of the benefit of switching. If the new deal also has a fee even less likely its worth it. Your friend should run the numbers and see if its actually going to be a saving at all. 
    Yeah, he text me to say that it looks like he has a 3% ERC. If they waved the charge they'd get an extra two years business but I'm sure they won't see it like that.
    At a lower interest rate and they would incur costs by returning that money early themselves. 
    Doesnt make any sense for the lender to waive the ERCs unless your friend agreed to stick with them for probably 10-15 years but even then they wouldnt waive it. 
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
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