Early repayment charges to pocket equity and expand portfolio?

Early repayment charges to pocket equity and expand portfolio?

16:31 PM, 10th July 2017, About 5 years ago 6

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I am looking to expand my property business, as looking to reduce hours at current job and focus on developing income from property.

I am considering remortgaging a property that is on a 5 year fix, as it has 60k of equity.

However, remortgaging before 2020 would cost £3500.

Appreciate peoples thoughts/experience of the opportunity cost and whether this is worthwhile? Natural instinct is I don’t want to pay the fee, but I guess that it’s the only way to bring forward financing, short of winning the lottery!



by Neil Patterson

16:37 PM, 10th July 2017, About 5 years ago

Ah classic economics 101 question of opportunity cost.

"Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it is the difference in return between a chosen investment and one that is necessarily passed up."

by Darren Peters

13:16 PM, 11th July 2017, About 5 years ago

Will the deal you do with the 60K pay the £3500 fee plus increased monthly interest payment and of course a profit? Ie overall would you be better off taking the hit?

Is there a cheaper way to do that same deal (even if deal doesn't exist yet. Ie something else you could refinance?)

Does your mortgage company allow further draw down under the same terms?

Could you get a second mortgage/

Does the terms of the mortgage allow it to be portable so you could move it to another property (the new deal!)? Then refinance the first property?

by Paul Green

16:15 PM, 11th July 2017, About 5 years ago

A 2nd charge mortgage could cost less than £3500. Between now and 2020 Although the interest rate would be higher on the 60k . Your need to do the Math.....just a suggestion..

by H B

19:20 PM, 11th July 2017, About 5 years ago

I think you need to factor in what difference it makes to your LTV on both properties and your tax band after you receive the additional income.

S24 is key.

by Richard U

10:58 AM, 12th July 2017, About 5 years ago

Reply to the comment left by "Paul Green" at "11/07/2017 - 16:15":

Hi Paul, The £3500 is the penalty fee for early redemption of the existing mortgage.

by Paul Green

11:22 AM, 12th July 2017, About 5 years ago

Yes what they call an ERC....as I mentioned you ell have to do the math...are you loosing money by paying the ERC or saving money with the new remortgage interest rate? The 2nd charge mortgage means you won't have to pay the ERC (early repayment charge) but the interest on the extra 60k you wish to raise will be higher because the lender is taking a bigger risk as he is 2nd in the que for payment. If for instance repossession...with out knowing your numbers it's impossible to work out, their are a number of calculations to make i.e. Interest rates, we can only point you in the right direction. I would get your calculator out. Lol

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