Remortgaging before ending fixed period

PolarityMan

Current mortgage fixed rates are nearly 1% lower than the deal I'm currently on, which is fixed for another 2 years, so it seems like even with an early repayment charge its a no brainer to remortgage. The early repayment charge is 1.7% of the balance but obviously the compound effect of the difference in interest rates looks like it will outweigh it pretty heavily.


Am I missing something? Can I save money by literally doing nothing?

I phoned my mortage provider already and they wont offer any incentive either on fees or waiving early repayment charges so is it as simple as just starting an application with another bank?

This jsut somehow seems "wrong"

Haych

Without knowing the figures it's difficult to say what's best to do.  How much will you save over the two years left on your remaining term if you do switch mortgage providers?  Is it a significant saving?  Is your new lender offering free legals or will you have to pay these costs?

Providers usually have an early redemption charge just for this reason - if they didn't as soon as a cheaper deal came out from a different provider their customers would be off.  It's a fair practice I reckon.

When I remortgage I usually take the longest period/best rate available at the time.  My LTV ratio was under 65% when I last remortgaged so I was able to get a pretty good rate.  Even if rates go down (as they did last time I remortgaged five years ago) I know what I need to pay each month and for how long, it's a security in itself.

If you can save money by switching then by all means it's your prerogative to take.  Do the sums a few times before you take the plunge, get a redemption figure from your current lender to base your maths on and make sure you have all your ducks in a row and haven't left anything out.

The small print of your current mortgage contract will tell you what your obligations are if you wanted to end the term early, check that carefully as there could be other fees involved - some lenders will charge a redemption fee on top of ERC, it's usually not much but worth knowing about. 

Best of luck though, if you can save a bit of dosh, why shouldn't you?

joneve

Yep. I believe this is (at least) part of the reason for the early re-payment charges in fixed terms. 

Tries to put people off shopping around and jumping from mortgage to mortgage. but if the fixed deals around are better than you're on and you'll still save money by paying the early re-payment charge, then nothing stopping you trying to get a mortgage through a different provider. 

Snap

Also check the fee for the new mortgage. Some of these can be one or two grand. A one percent interest saving over two years, vs 1.7% early redemption fee plus arrangement fee, plus any other fees, looks a fine line.

ESBlonde

Mention to the current lenders that you have a better offer and would they like to entice you with something better?

PolarityMan

ESBlonde said:

Mention to the current lenders that you have a better offer and would they like to entice you with something better?

Did try that..they wouldnt budge. 

ToneControl

look at:
the fee for the move, including valuations, plus conveyancing if not free
the saving over the fixed interest period
add the redemption penalty

it's very rarely possible to save cash by paying the penalty

what percentages and time periods are these deals, and what lenders?

PolarityMan

I hadn't factored in a conveyancing fee. I dont think we paid one on our last remortgage. Did add in the early redemption charge and administration fee plus product fees.

Looks like a saving even at the same lender which is HSBC. My current interest rate is 2.25%, the early repayment charge works out at 1.7% of the balance although its obviously calculated as a fixed component plus a smaller percentage. For 2 year fixed looks like I can get down to 1.69%.

Obviously this isnt a huge different but the delta is compounded...my calculations were over the whole term not the initial term though which might be misleading since the discounted rate jumps up at the end of the fixed term so maybe need to do a quick re-run.

As an added complication I also want to add some capital so that I can reduce both the term and the monthly repayments as we are rearranging things to allow my wife to take an extra year off work with the kids so this may put us down the remortgage route anyway but even before I factor in repaying more it looks like I could save by paying the fees

With a .25% rise forecast after an orderly brexit seems like getting in a new fixed term might be a good idea too. 

richardhomer

Most mortgages these days have an arrangement fee - which can be substantial. You need to add this to the early redemption penalty and divide it by the term you are planning on fixing for (in months). Only when you add this figure to your proposed new monthly repayment can you assess whether you are actually saving money.

BigMonka

PolarityMan said:

Obviously this isnt a huge different but the delta is compounded...my calculations were over the whole term not the initial term though which might be misleading since the discounted rate jumps up at the end of the fixed term so maybe need to do a quick re-run.

You'd be mad not to sign up for a new deal at the end of the fixed term, so only ever do your calculations based on the fixed term period rather than the rest of the mortgage term.