Is it worth paying an early repayment charge to get a cheaper mortgage rate?

Posted on 9 August 2012 by ann marie


Is it worth me remortgaging whilst in a 5 year fixed.with just under 2 years left. just to get a lower rate and cheaper repayments?

Ann Marie

I don't know the amount of your mortgage, interest rate you are currently paying or the amount of any early repayment charge (ERC) you are subject to and without these I can not give you a specific answer.

Back in May 2009 the typical 5 year fixed rates were around 4.70% and had a 3% ERC, whereas today the cheapest rate is 2.95% with an arrangement fee of £2495.  Presuming a mortgage of £100,000 you would have to pay an ERC of £3,000, plus any redemption fee and the arrangement fee on the new mortgage, a total of over £5,495.  But what would you save?  On a interest only mortgage you payments would reduce from £391.67 to £245.83 and over two years this would save you £3500.16.  For the following 3 years, presuming you stayed on the Lender's standard variable rate, your savings would be greater, but we can't say at this time what rates will be available in 2 years time should you wish to stay where you are now and remortgage later.

I believe we can help you and that you would benefit from speaking to one of our independent mortgage advisers.  Please call 0344 346 3672 and tell the consultant the date and title of your question, they will then be able to help you calculate if it is worth remortgaging or not.

Peter

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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