Mortage break penalty

[Guest2]

I am considering to apply for a 5 year fixed rate mortgage but noticed the monthly repayments on a 10 year fixed are not much higher.

If I was to choose the 190 year fixed and wanted to break out the mortgage after say 5 years, what would the penalty be? This is just using the Nationwide quick calculator for the mortgage example below

5 yr Fixed -£689.79 / 2.29%

10 yr Fixed -£714.55 / 2.79%

 

[Glaucus]

That will depend on the mortgage.
Although a lot will let you transfer to a different propert.

 

[Guest2]

That will depend on the mortgage.
Although a lot will let you transfer to a different propert.

Nationwide standard 3 / 5 / 10 year fixed (no product fee)

 

[Glaucus]

10 year one is 7% year 1-4 then drops 1% a year.

 

[Guest2]

Thanks Glaucus. Just found the Nationwide ERC charges myself too. Are these similar with other banks & lenders do you think

Would you recommend choosing a higher term (5 or 10 year) at the moment based on interest rates? I don't want to choose a 2 or 3 really as see them shooting up in the next few years but also don't want to tie myself in on my first home purchase / mortgage

 

[Glaucus]

They don't look to much different.
Can't see whether it's transferable. Imo that's more important than early repayment charges.

Depends what you think the economy is going to do, and how long you think you are going to live there.

If it was me and at that percent rating I would fix as long as possible,if you think you're going to live their a long time. But then I think brexit is going to absolutely hammer the economy unless we stay in cu/sm.

Edit they also have a calculator
https://www.nationwide.co.uk/products/mortgages/our-mortgages/mortgage-calculators/early-repayment

 

[Guest2]

2.79% is pretty low but due to brexit, who knows whats going to happen. Think I'll go with the 10 year fixed and try to pay off 10% of the balance each year. I should hopefully clear a 15 year mortgage after 10 years then if I build up some savings

 

[TripleT]

Similar penalties at HSBC. I got stung coming out of a 5 year fix early and I couldn't port as I was buying a new build with htb.

 

[HungryHippos]

2.79% is pretty low but due to brexit, who knows whats going to happen. Think I'll go with the 10 year fixed and try to pay off 10% of the balance each year. I should hopefully clear a 15 year mortgage after 10 years then if I build up some savings

This depends on a lot of factors.

If you are buying with say 10% equity, so 90% LTV then you may be better getting an initial shorter term. The rates are better on the short term mortgages, and if you can overpay by 10% a year then after the initial 2/3 year period ends you can go up the LTV brackets and get access to even better rates.

If you are at 40% equity then this same benefit doesn't really exist, so fix for however long you want.

Nationwide did (still probably do) a tracker with no ERC charges, allowing you to overpay as much as you want. I was able to get a standard fix from that without a penalty of any kind at a time when I chose to fix. Downside is you need to monitor the interest rates a bit to see if they are planning to up them.

I for one can't see them upping them significantly any time soon. Think they'll start slow with 0.25% increases initially. Brexit is coming and that could lead to uncertainty. They won't want to rock the boat unnecessarily.

Also if you are good at actually overpaying, then I would not rush into a 15 year mortgage. You can normally clear 10% of the balance each year so if you are disciplined to do so, get a longer mortgage and overpay it to clear it sooner if you wish to do so. This gives you a lot more flexibility month to month and makes your mandatory payments lower.

A longer mortgage should only cost you more if you can't clear it and wind up staying on it for longer than expected.

 

[Guest2]

Thanks Hippo.
My thinking was that with a 15 year I could still overpay and after a 10 year fixed interest rate probably pay off the remaining balance (after overpaying by 10% each year)

Clearing a mortgage in 10 years sounds a lot nicer than having one for the standard 25 years (33% deposit)

 

[HungryHippos]

My main thing was that having a shorter time frame limits your options a bit. There is nothing stopping you from clearing a 25 year mortgage in 10 years or so if you want, and you can optionally let it run longer if you want.

As you are at 33% deposit you're not at the absolute best rates, which come in at 40%. I would get something short term like the tracker without an ERC, and aim to clear the 40% marker. After that you can fix if you want and there is no penalty to doing so.

Best to speak to a broker though who can definitely discuss the options with you.

 

[Mercenary Keyboard Warrior]

Nationwide are portable, although based on them accepting you and the new property

 

[Mercenary Keyboard Warrior]

Remember on the overpayment thing its only applied to the excess over what you are allowed.
Eg take a £150k mortgage, your allowed to pay 10% extra per year.
So an overpayment of £15,00o per year, a year for this benefit is for 365 days from your initial date (ie the date the funds are drawn from the lender)
Say this was the 1st of July. On the 30th of June you could pay £15,000 one year in, and on the first of July another £15,000 and all would be penalty free, so the timing matters.

Also as I mention above the penalty is only on the excess overpayment, so say at the end of year 2 you have a windfall of £25,000 decide to pay it off your mortgage, the most obvious plan is pay off £15,000 and hold the £10k left until you can pay penalty free, but if you are determined to pay off the £25k then the penalty only applies to the £25-£15k = £10k

Nationwide are interesting, in that they ask you what you want to do if you overpay more than £500 in a lump sum. You can choose to shorten the length, so they leave your normal payments the same, or you can choose to keep the same length and hence they reduce your normal payments to keep your term the same.
The overpayment is also flexible, so you can take a payment holiday for example if needed, they do need to agree this in advance though.

 

[Holst1981]

We just remortgaged moving from nationwide to first direct.

Different lenders have different rules on overpayment so you need to read the specific terms.

First direct have a fairly hefty charge if you pay off the mortgage during the fixed period but no charge once your fix ends.

This made us go with a 5 year fix, as we can switch with no penalty after 5 years.

For us 5 year fix at 1.95% felt like the best deal.

 

[Psycho Sonny]

personally i'd just fix for the shortest term you can IMO with no product fee.

I don't see interest rates ever rising again. houses are far too expensive and the only way people can afford houses is due to low interest rates.

imagine if today as a first time buyer trying to buy with 15% interest rates. all first time buyers would be living with parents until they were 50.

 

[Glaucus]

personally i'd just fix for the shortest term you can IMO with no product fee.

I don't see interest rates ever rising again. houses are far too expensive and the only way people can afford houses is due to low interest rates.

imagine if today as a first time buyer trying to buy with 15% interest rates. all first time buyers would be living with parents until they were 50.

They rose in December and by all rumours will be rising again very shortly. You only need about 4 rises over 3 years to make long fixes beneficial.

No one is talking about 15%

 

[Skillmister]

They rose in December and by all rumours will be rising again very shortly. You only need about 4 rises over 3 years to make long fixes beneficial.

No one is talking about 15%

Don't forget in Psycho Sonny's dream world there is no such thing as middle ground.

 

[Mercenary Keyboard Warrior]

Its just a security vs risk calculation really, the higher a percentage of your take home your going to pay the more a longer term fix may suit you.
Yes it will cost a little more but if we approach anything like historic interest rates then these fix rates will look like bargains.

I believe interest rates will rise slowly. They are a key factor used to manipulate the economy and as such they will want to have that option available post brexit d(oom) day

Its a hell of a gamble to assume interest rates will never approach historic levels, I can think of better things to gamble on personally

 

[Semple]

snip

It doesn't even have to jump that high to be an issue though.

A 1.5% increase would actually whack on £158/month (£1900/yr) for my mortgage payments.

Heck even a 1% increase would be £100/mt (£1200/yr).

We can afford the small increases, but would much rather fix at 5 years, knowing exactly what you're paying for.

 

[Mercenary Keyboard Warrior]

I have said it before but will just drop this in again as it helps to focus the mind.

This is a minmax vs maxmin choice

Minmax, means you aim to minimise your maximum payment, this is to take the longest term you can. Ignoring issues such as moving, this approach will net you the lowest risk of paying more. If you are at a high level of repayment vs income this could be your best choice as you are maximising your certainty, albeit with a premium attached.

Maxmin, means you avoid fixes at all pretty much, or take very short ones, it means you are looking to maximise the opportunity to make minimum payments by avoiding any premium attached to longer term borrowing.
If you have high income vs mortgage this again would probably be your best choice, you can easily absorb the risk of rates going adverse and paying more over the longer term.

You can of course go in between but being able to set the two ends of the scale helps (some) get the implications of each approach into perspective.