Mortgage Stay or Switch

D

Dan_The_Man

Registered User
Messages
58
Hi ...Colleague bought a house 3 yrs ago

Initial Mortgage = 300K (3yr fixed @ 3.1% 25yr term)
Value of House = 420K (approx)
Current Mortgage = 240K
2 key points here:
Bank allowed lump sum payments during the last 3yrs
Bank allowed 10% monthly overpayments from start (more about that below)

3yrs is up bank now offering 2yr fixed @ 2.8%

I did suggest switching providers for lower rate (and maybe some cashback)
However colleague is telling me that the bank is allowing the original over payment which based on new
reduced loan amount and rate is now like a flexible 30% over-payment (colleague very comfortable with this).

I get that this type of overpaying could be achieved by reducing the term with another provider but I can see value in the flex.
By flex i mean: 1. optional 30% overpay 2. the bank seem cool allowing them to pay off lumps which may not be allowed else where.


If their goal is to clear off mortgage quick as possible what should they do?

In writing all this down ..i may have answered their question ..but open to other opinion in case I'm missing something.
 
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I'm assuming the overpayment is working out as 30% of the repayment amount each month?
UB allow 10% if the balance each year.
KBC 10% of the balance during fixed term.
These would probably provide at least as much flexibility?

Dan_The_Man said:
If their goal is to clear off mortgage quick as possible what should they do?
Click to expand...
Go with the lowest possible rate, and overpay as much and as often as possible.
 
RedOnion said:
I'm assuming the overpayment is working out as 30% of the repayment amount each month?
Click to expand...


Thanks and yes every month they overpaying 30% on 2.8%

whilst the mortgage term is the same 25yrs, these arrangements are really only for 2yrs (new fixed rate)

1. KBC 1046 per month w/ 10% overpay on 2.25% = 1150
vs
2. Current Bank 1115 per month w/ 30% overpay on 2.8% = 1449

the difference = 70 euro a month between the 2 rates , dos the extra 300 overpay compensate for that?
plus current bank allows a lump payments ..not sure if the banks offering the very low rates do?

numbers above ive just taken from a mortgage calc ...im open to correction.
 
No, you're comparing 10% overpayment based on repayment amount. He can overpay 10% of the balance! So 24,000 (or 2,000 per month with UB)
 
RedOnion said:
No, you're comparing 10% overpayment based on repayment amount. He can overpay 10% of the balance! So 24,000 (or 2,000 per month with UB)
Click to expand...

ah ok thanks ....thats the way to go then , are UB giving cashback or legal fees?
 
Money towards legal fees is just cash back by another name. Your solicitor doesn't get the money, you do. It's just a marketing gimmick, so in truth Ulster give E1500 flat cash back.
 
Assuming 2yrs, 25yr term and switching costs = 1.5K (approx)
As of bonkers comparison ran today

Current Bank 2.8% = 1115 per month

KBC 2.25% = 1046 per month saving = 70 per months or 1680 saving over 2yr + 3k switching offer = 4680 - 1500 = 3180
Not sure of overpay - anyone know?

vs
UB 2.3% = 1052 per month saving = 63 per month or 1512 over 2yrs + 1500 legal fees - 1500 = 1512.
But sounds like 10% overpay

vs
PTSB 2.8% = 1115 per month = 0 per month + 2% Cashback = 4800 - 1500 = 3300
* this over 3yrs (but who knows where rates will be after 2yrs)
Not sure of overpay T&Cs - anyone know?
 
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RedOnion said:
I've already posted it in this thread.




What are you actually trying to calculate, and I'll do a comparison for you.
Click to expand...

Thanks, just which is the best option overall ...between KBC and PTSB seem to come out > 3k better off but one piece of value is the ability to overpay.

or put another way ...for someone who is comfortable paying 1500 a month what is the best option over 2yrs?
 
Ok, only looking at 2 years here.

Assuming in all cases 1,500 is being repaid per month. I've assumed 1,500 fees to switch, and reduced the balance by the remaining cashback in each case so it's factored into end position. Note, PTSB also give 2% of repayment as cashback in certain conditions are met - it's 30 per month (720 over 2 years). I haven't factored that in.

Balances at end of 2 years will be:
Current: 216,824
UB: 214,480 (2.3%)
KBC: 212,680 (2.25%)
PTSB: 213,334

If you factor in PTSB monthly cashback it'd roughly match KBC.

The overpayments are comfortably within UB and KBC limits. Technically PTSB would calculate if a break fee is due, but they don't.
There's a post on each banks policy here: https://www.askaboutmoney.com/threads/understanding-fixed-rates-breakage-costs.204427/
 
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Brilliant ..thanks a lot for your time in working that out , fair play
so just based on number above thats 4k approx saving
 
Exactly.
Sorry I had used incorrect rates in my calc - fixed now in post above.
 

@RedOnion thanks again for your help so-far
My colleague did some ringing around based on above.
KBC 2.25% only if current account switched too otherwise 2.45%
Existing Mortgage over 25yrs , KBC saying they will only permit a 20yr term(based on age profile).

So still a better rate but is moving from 25yr to 20yr a good or a bad thing?
I get that if you willing to overpay you are effectively reducing the term anyway.
 
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