Should I pay a penalty to exit my mortgage & fix before rise

[jakesmith]

Hi, I have a mortgage with 13 months left on the lock in, at 1.85%
The penalty is £5k to leave (!) but there are presently 10 year fixes at 1.95% that would see me almost to the end of my overall term
I am usually a bit on the cautious side of things and it is appealing even though the fee is horrendous - it's only the equivalent of 4 months of payments though. With rates above 2.75% when I remortgage, I'd be worse off.
It is easy to add the fee to the new mortgage anyway so I wouldn't really miss it out my pocket
What would people do / advise?

[Muncher]

We’re not going to see rates of 2.75% in 13 months time.

That being said two and a half years ago I paid a £4K to switch to a new product with a new lender as it made sense to do so over the longer term. I am now paying £11k to exit that deal early again as I move from 1.97% to 0.97% on a 5 year fix. If in two and a half years time the best available rates are no better than 1.35% then my gamble has paid off.

Edited by Muncher on Monday 22 November 19:34

[dundarach]

Only you know how brave you are.

For reference in something like 2006 I fixed mine for life at BofE base rate +.25% whilst many of my friends were saying I was stupid as they were getting fixed rates like I don't know 3/4/5% something like that.

Then it all went bang and to this day, I'm still on it

If you can afford the new fixed rate until the end of your mortgage, I say go for it, for peace of mind.

[NickCQ]

jakesmith said:

Hi, I have a mortgage with 13 months left on the lock in, at 1.85%
The penalty is £5k to leave (!) but there are presently 10 year fixes at 1.95% that would see me almost to the end of my overall term
I am usually a bit on the cautious side of things and it is appealing even though the fee is horrendous - it's only the equivalent of 4 months of payments though. With rates above 2.75% when I remortgage, I'd be worse off.

How does your ERC step down? Often then go down by 1% each year, so it may halve to £2.5k in a month when you have 12 months to go.
Rates for 10 year fixes are more volatile than shorter fixes and may disappear altogether if rates (& the fwd curve) start to move. If it was a £2.5k cost on a £250k mortgage and you could fix for life at 1.95% I would be very tempted as someone similarly risk averse.

[The Leaper]

Many years ago I had a straightforward 25 year repayment mortgage. Every time the rate increased, I increased my monthly repayment. Every time the rate decreased I kept the monthly payment unchanged. Simples! By this method I paid off the mortgage in about 10 years and "saved" myself an estimated £80,000. I realise that this kind of result depends on the level of prevailing interest rates which were significantly higher at that time, but the result is nice nonetheless.

R.

[The Leaper]

Oops, my post above has gone on the wrong thread!

[jakesmith]

NickCQ said:

jakesmith said:

Hi, I have a mortgage with 13 months left on the lock in, at 1.85%
The penalty is £5k to leave (!) but there are presently 10 year fixes at 1.95% that would see me almost to the end of my overall term
I am usually a bit on the cautious side of things and it is appealing even though the fee is horrendous - it's only the equivalent of 4 months of payments though. With rates above 2.75% when I remortgage, I'd be worse off.

How does your ERC step down? Often then go down by 1% each year, so it may halve to £2.5k in a month when you have 12 months to go.
Rates for 10 year fixes are more volatile than shorter fixes and may disappear altogether if rates (& the fwd curve) start to move. If it was a £2.5k cost on a £250k mortgage and you could fix for life at 1.95% I would be very tempted as someone similarly risk averse.

Hi Nick, no further stepdown unfortunately...

[KTF]

If you can afford (or are willing to) to pay the 5K penalty, what would happen to the remaining term if you used that to overpay on the mortgage instead?

[BoRED S2upid]

Does the penalty reduce with only 11 months left? Nothing stopping you going through the process now and not completing for a few months. The quote usually gives 6 months to complete. So it might not be £5k.