Which mortgage would you go for?

[RollingInTheCreek]

For background when we took out our mortgage it was on a low rate, pre two kids and covid where DH lost his job and took a hefty pay cut so finances have changed A LOT. Please no criticism that we shouldn’t have stretched ourselves so much as we didn’t anticipate everything that’s happened and have shed those tears and feel horribly guilty about it already.

For reference:
total monthly income is £4500
Childcare costs £950pcm (will get 30 free hours for youngest in April 2023 so costs will go down to £500pcm then £180pcm in sept 2023)
Current mortgage £1260 (£358000 left, 29 year term)

We have sought advice from a mortgage broker and seem to have the following options:

Option 1:
Extend term to 35 years
Cost per month: £1422 (including £999 arrangement fee)
Will need to pay £290 for solicitor to do their part
£500 cashback
New rate from Jan 2023 so 6 more months on lower rate

Option 2:
Stay with current lender
Keep term 29 years
Lock in new rate early and pay £1500 ERPC (lender won’t budge on this we have asked)
Cost per month: £1510
New rate from August 2023 so less time on cheaper rate

Short term we’d be much better off on option one but long term end up paying almost £85,000 more!

which would you do?

Are they both fixed rate? How long does the fixed rate last for each and is the rate the same?

What is the rate for the two options?

What's the rate?
Fixed?
Have you used London and country?

Used L&C
Both fixed rate for 5 years
Option 1 is 3.24%
Option 2 is 2.94%

Option 2 for sure

We don’t have a huge amount of savings so the £1500 ERPC would use up half of it however I have an incredibly wealthy grandparent so if the boiler broke etc we could always ask for a loan easily (we are lucky).

Option 2. The monthly payment difference isn't huge, but the extra 5 years term is massive.

Option 2.

DH wants option 2 I’m just worried money will be unbearably tight from august-April of next year and we may end up getting into debt just to make ends meet. We have cut down our lifestyle as much as possible already. We are mid 30s so retirement seems like it’ll never happen anyway. But sensibly I think you’re right!

Option 2 as well. I would have originally said extend for the flexibility of reducing monthly payments and overpay but you’re not getting much of a saving wirh option 1 so it just seems unappealing. Would your current lender let you extend to 35 years? You’re not really comparing like with like.

A few months ago I paid an ERC so I could go on a new 5 year fix at 1.39% - just before recent rate rises begun. Doing all the sums figuring it out I decided it was more than worth it. Worse case scenario I will be only slightly better off after paying ERC.

I think you are right to be concerned but most will be in the same boat, sadly.

We also paid an ERC earlier this year to get a 5 year fixed rate of 1.27%.

It will be worth it.

Are they both fixed and similar time scales? If so I'd look at how much would be outstanding for scenario 2 at the end of the fixed term vs how much would be outstanding at the same point if you went with scenario 1 but overpaid with the same monthly payments as mortgage 2 and also the £1500 ERC (most allow up to 10% overpayment per year). Would take whichever left least outstanding at the end. You can then remortgage and change the term if things work better then.

@NamelessNancy that’s a good idea I’ll do some maths tomorrow!!

Have you already posted a few times about your mortgage, your figures snd situation look
very familiar?

No I’ve never posted before sorry if it seems familiar @BoJoGoGo

Option 2. No question

Assuming the you will inherit enough to clear the mortgage eventually anyway then so go with the cheapest monthly payment t for the next five years.