Check my Logic on Mortgage payment please.
Discussion
I'm 2 years into a fixed 3 year deal. I like to review my options every year just to check what's available.
Currently 5.89% fixed £1600 a month. (didn't seem a bad deal at the time, especially as we were facing mortgage amagedon) £7k early redemption penalty. Abbey are my provider.
Now, the broker has found a deal that's interest only at 3.44% = £800 a month meaning I could pay off the principle at 800 a month not 400. (actually I was planning to pay off 400, save 400 to build up savings/just in case fund then make an additional lump sum at year end)
The problem is the cost to change is about £10k (early redemption+ fees). That would have to be added to the principle and as such after a year I'd be no better off on principle repaid.
400 a month = 4800 paid off vs 800 a month = 9,600-10,000 = 400 worse off?
Have I missed anything here? I'm not in any trouble financialy, was just looking to restructure a bit if it made sense. Do you think it would be worthwhile talking to Abbey to see if they could better the deal?
Currently 5.89% fixed £1600 a month. (didn't seem a bad deal at the time, especially as we were facing mortgage amagedon) £7k early redemption penalty. Abbey are my provider.
Now, the broker has found a deal that's interest only at 3.44% = £800 a month meaning I could pay off the principle at 800 a month not 400. (actually I was planning to pay off 400, save 400 to build up savings/just in case fund then make an additional lump sum at year end)
The problem is the cost to change is about £10k (early redemption+ fees). That would have to be added to the principle and as such after a year I'd be no better off on principle repaid.
400 a month = 4800 paid off vs 800 a month = 9,600-10,000 = 400 worse off?
Have I missed anything here? I'm not in any trouble financialy, was just looking to restructure a bit if it made sense. Do you think it would be worthwhile talking to Abbey to see if they could better the deal?
Ignoring how much you would or wouldn't pay off at this stage, in simplistic terms you are currently paying 5.9% and will be paying 3.44% (the only 'fee' you actually 'pay' during the mortgage is the interest). As such you will be approximately 2.5% better off p.a in interest.
I haven't a calculator to hand, but I work out your principal loan at approximately £280k (3.44% = ~£800pm interest only) therefore you will 'save' approximately £7000 in one year. As you have pointed out your fees will be the redemption of £7000 plus fees. Therefore not viable IMO.
This is not 100% accurate as there will be small variables with regards to extending and hen diminishing the principle but they will be insignificant in comparison.
I haven't a calculator to hand, but I work out your principal loan at approximately £280k (3.44% = ~£800pm interest only) therefore you will 'save' approximately £7000 in one year. As you have pointed out your fees will be the redemption of £7000 plus fees. Therefore not viable IMO.
This is not 100% accurate as there will be small variables with regards to extending and hen diminishing the principle but they will be insignificant in comparison.
http://www.mortgages-online.co.uk/Mortgage_Calcula...
The link to the calculator above will give you the answer. Include early repayment charges from the current mortgage in the charges to set up the new mortgage.
The link to the calculator above will give you the answer. Include early repayment charges from the current mortgage in the charges to set up the new mortgage.
musclecarmad said:
well, what does your fixed rate go to after it runs out - ie what's the lenders svr? if it's high you could be better off moving your mortgage.
however if your lenders svr is low so after your final year on your current mortgage you go down to a low rate then you will save the £10k in fees.
it really is simple!
I wouldn't worry about the existing lender's SVR - if there is something better when your ERP ends then you will jump ship at that time, it has little bearing now.however if your lenders svr is low so after your final year on your current mortgage you go down to a low rate then you will save the £10k in fees.
it really is simple!
Edited by musclecarmad on Tuesday 6th July 09:11
Important things to consider when jumping ship for a potential saving...
1) Is the new mortgage variable? If it is then the rate can go up and it could cost more. Your existing mortgage, while fixed, will cost the same regardless of movements in interest rates.
2) If the new deal is fixed for a longer period than the existing deal then this may be worth paying a small premium for because fixed rates when your ERP ends could be higher than they are now, so you end up paying more in the future.
Thanks everyone, pretty much what I thought.
It sounded like a good idea until I started to look at the detail. Taking on the additional debt to pay off an existing debt (even at a lower rate) was daft. At the end of 1 year I would be worse off with regard to the amount outstanding, the only advantage this would offer me would be flexibility of payment.
It sounded like a good idea until I started to look at the detail. Taking on the additional debt to pay off an existing debt (even at a lower rate) was daft. At the end of 1 year I would be worse off with regard to the amount outstanding, the only advantage this would offer me would be flexibility of payment.
Bullett said:
Thanks everyone, pretty much what I thought.
It sounded like a good idea until I started to look at the detail. Taking on the additional debt to pay off an existing debt (even at a lower rate) was daft. At the end of 1 year I would be worse off with regard to the amount outstanding, the only advantage this would offer me would be flexibility of payment.
I'd be more concerned that your broker put it forward as a good deal, I'd find someone better to give you advice.It sounded like a good idea until I started to look at the detail. Taking on the additional debt to pay off an existing debt (even at a lower rate) was daft. At the end of 1 year I would be worse off with regard to the amount outstanding, the only advantage this would offer me would be flexibility of payment.
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