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anonguest

Early Redemption Charges Vs Savings Interest

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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

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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.

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  • 407 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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