Jump to content
House Price Crash Forum
Sign in to follow this  
anonguest

Early Redemption Charges Vs Savings Interest

Recommended Posts

A long time friend is selling their house and relocating. They currently have approx. £80K mortgage. The new house is expected to be coincidentally about this amount cheaper, i.e they can expect to buy the new house with nominally no mortgage.

BUT redeeming the mortgage at the present time will incur hefty early repayment charge. This period during which the penalty charge would apply expires in just over two years from now.

My initial thoughts/suggestion to him was they buy the new cheaper house but deliberately 'retain' the mortgage and put the 80-odd thousand in the highest interest rate savings vehicle they can find - and exploit the interest rate differential between savings rates and their mortgage rate.

They would thus continue to pay a mortgage of only just about 1% rate. Thus, even though continuing to pay (vastly reduced) monthly mortgage payments for another 2 years, the total amount paid would be less than half that of the early repayment charge. Then when the penalty charge period expires, they withdraw the savings and settle the mortgage in full with no penalty. I calculated they could save about £3000, assuming the interest rate differential remains broadly the same over the two years.

Assuming they can 'transfer' the mortgage to the new property, at no/very little cost, surely this tactic makes sense? No?

If not, what am I missing?

Edited by anonguest

Share this post


Link to post
Share on other sites

a mortgage is normally secured against a property that has been surveyed and valued by the lender.

transferring would have these costs too....although technically it will be a new mortgage whatever happened.

some banks waive the redemption if you renew this way...they call it a portable mortgage, but its not really.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.