Should I change my mortgage with big penalty fee

[ellerman]

This is going around and round in my head. Stuck on a 5.89% until September 2012. Monthly payments are £512, for part endowment part repayment ( 60K and 25K) Finding it a bit much now that rates are so low. Have £3200 of early repayment penalties. Do we switch to better rate, adding penalties to existing mortgage or just bite bullet and overpay as much as we can to reduce capital part until 2012 and therefore get bit of interest break? Have spoken to couple of people who seem to suggest that adding penalties to existing mortgage big no no. Our mortgage has only 10 years to run.

How much would you save if you changed between now and 2012? What I mean is, will the 3200 be dwarfed by the savings you'd make? What is the best rate you've been offered? What is the "arrangement fee"? E.g., if you can save 150 a month, but the arrangement fee is 3k (not unhead of right now!) but only for 24 months, are you better off?

(24 x 150) - 3000 - 3200 = -2600!

Do your sums carefully.

Are your current repayments fixed? What I mean is, if you overpay, are you going to find that your monthly payments are reduced because the capital that you owe is less and therefore the interest charged ON the capital less?

Would you switch to a fixed low-interest rate or would you go for a variable? Bearing in mind that interest rates are predicted to be able to go in only one direction from here on in... you could end up paying a big redemption fee and within 12 months be paying 6% anyway.

You have three years before you can get out of your current deal penalty free.

The current penalty is £3200.

Therefore your new mortgage needs to be at least £1100 a year cheaper, i.e. your monthly replayments need to be about £100 less than you're currently paying.

So if you cann find a mortgage that will cost you £412 a month or less, with the same term, switch. If you can't, don't.

Simples!

don't forget to factor in the arrangement fee for the new mortgage in your sums. I am about to fix for 5 years and it is costing me £1100 in fees alone.

If you add the penalties to your existing mortgage, you also need to add in the interest you'll be paying on this for the next 10 years. So, it will cost more than £3,200.

What rate is actually available to you if you change?

Thanks for replies, no rate for certain yet need to have a look in next day or so, meanwhile have started overpaying by £100 a month to reduce debt a bit - it all helps with less interest to pay