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  • FIRST POST
    • TheBlueVoice
    • By TheBlueVoice 19th Apr 17, 11:47 AM
    • 20Posts
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    TheBlueVoice
    Repay mortgage with 1% erc now or wait.
    • #1
    • 19th Apr 17, 11:47 AM
    Repay mortgage with 1% erc now or wait. 19th Apr 17 at 11:47 AM
    Hi,

    I've got 25k left on my mortgage, interest rate is 2.79%

    It has an erc of 1% until 1/5/2018.

    Working out whether to pay it now or wait for erc period to finish is simply looking for a savings rate for a 25k deposit of better than 1.79% yes?

    Is it this simple?

    Thanks!
Page 1
    • TheBlueVoice
    • By TheBlueVoice 19th Apr 17, 2:14 PM
    • 20 Posts
    • 2 Thanks
    TheBlueVoice
    • #2
    • 19th Apr 17, 2:14 PM
    • #2
    • 19th Apr 17, 2:14 PM
    2.79% mortgage rate fixed until may 2018
    ERC 1% until may 2018

    I've since realised I have also to take into account additional savings interest I could earn on the mortgage repayments too if I decided to pay off the mortgage.
    Last edited by MSE ForumTeam5; 20-04-2017 at 10:34 AM. Reason: Quoting deleted post
    • Lilla D
    • By Lilla D 19th Apr 17, 2:18 PM
    • 238 Posts
    • 108 Thanks
    Lilla D
    • #3
    • 19th Apr 17, 2:18 PM
    • #3
    • 19th Apr 17, 2:18 PM
    I think OP just deducted the 1% ERC from the current 2.79% rate to get to the 1.79% savings rate for putting his £25k into as opposed to paying off his mortgage.

    I don't think the question is as simple as that though, because it depends on what time frame we're looking at and whether the mortgage is on repayment or interest only basis.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • TheBlueVoice
    • By TheBlueVoice 19th Apr 17, 2:40 PM
    • 20 Posts
    • 2 Thanks
    TheBlueVoice
    • #4
    • 19th Apr 17, 2:40 PM
    • #4
    • 19th Apr 17, 2:40 PM
    I think OP just deducted the 1% ERC from the current 2.79% rate to get to the 1.79% savings rate for putting his £25k into as opposed to paying off his mortgage.

    I don't think the question is as simple as that though, because it depends on what time frame we're looking at and whether the mortgage is on repayment or interest only basis.
    Originally posted by Lilla D

    Ah sorry, more details

    It's a repayment mortgage.
    An endowment has matured giving me the cash to pay it off you see.

    Really just trying to work out which is cheaper, keep the mortgage running until next may when the ERC drops to 0 and put the 25k into savings until then, or pay it off now incurring a 1% charge on the balance of 25k.
    • getmore4less
    • By getmore4less 19th Apr 17, 4:33 PM
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    getmore4less
    • #5
    • 19th Apr 17, 4:33 PM
    • #5
    • 19th Apr 17, 4:33 PM
    Well it is definitely not worth paying it all off as this months capital payment only has 2.79/12 worth of interest.

    Need more details to work out optimum strategy.
    • TheBlueVoice
    • By TheBlueVoice 19th Apr 17, 4:45 PM
    • 20 Posts
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    TheBlueVoice
    • #6
    • 19th Apr 17, 4:45 PM
    • #6
    • 19th Apr 17, 4:45 PM
    Sorry, I meant may 2018, so according to a spreadsheet doing compound interest I would pay about £687 interest to the bank by then.

    Mortgage balance: 25k
    Type: Repayment
    Interest rate: 2.79%
    Monthly payment: £437
    ERC: 1% of amount repaid (until may 2018 when the ERC becomes 0)

    I cannot overpay anymore now without incurring an erc of 1%.

    If I paid it off now (incurring a £255 erc) I would put the monthly payments of £437 into savings. So there's the interest on that to consider too..

    All in all its probably only a few hundred difference!
    • getmore4less
    • By getmore4less 19th Apr 17, 4:53 PM
    • 29,164 Posts
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    getmore4less
    • #7
    • 19th Apr 17, 4:53 PM
    • #7
    • 19th Apr 17, 4:53 PM
    If you overpay can you keep the payment the same(not all lenders allow that)

    What does it cost to change to shorter term?
    • TheBlueVoice
    • By TheBlueVoice 19th Apr 17, 4:58 PM
    • 20 Posts
    • 2 Thanks
    TheBlueVoice
    • #8
    • 19th Apr 17, 4:58 PM
    • #8
    • 19th Apr 17, 4:58 PM
    Ah good idea, I'll see if I can change to a shorter term for free or very little. At about £50/month interest that means I need to bring down the term to under 5 months (£250 erc if I clear the mortgage today)..
    • getmore4less
    • By getmore4less 19th Apr 17, 5:14 PM
    • 29,164 Posts
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    getmore4less
    • #9
    • 19th Apr 17, 5:14 PM
    • #9
    • 19th Apr 17, 5:14 PM
    They probably won't go shorter than the rest of fix.
    • Lilla D
    • By Lilla D 19th Apr 17, 10:01 PM
    • 238 Posts
    • 108 Thanks
    Lilla D
    How short a term the lender agrees to will also depend on your income and outgoings, i.e. affordability.

    If the deal allows an overpayment (e.g. 10% per year), then you can pay that without an ERC and that will reduce your monthly payments (or the term) as well. If an overpayment is allowed, then might as well make use of it before redeeming the mortgage in order to reduce the balance subject to the ERC.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • getmore4less
    • By getmore4less 20th Apr 17, 10:03 AM
    • 29,164 Posts
    • 17,446 Thanks
    getmore4less
    Sorry, I meant may 2018, so according to a spreadsheet doing compound interest I would pay about £687 interest to the bank by then.

    Mortgage balance: 25k
    Type: Repayment
    Interest rate: 2.79%
    Monthly payment: £437
    ERC: 1% of amount repaid (until may 2018 when the ERC becomes 0)

    I cannot overpay anymore now without incurring an erc of 1%.

    If I paid it off now (incurring a £255 erc) I would put the monthly payments of £437 into savings. So there's the interest on that to consider too..

    All in all its probably only a few hundred difference!
    Originally posted by TheBlueVoice
    about 5 years left on full term and £25k in the bank.
    over 1y

    £25,000 2.79% £437pm left £20,395 interest £639

    If you could reduce the term to 1y

    £25,000 2.79% £2115pm left 0% interest £380

    if they will let you overpay and keep the payment the same

    £19,834 overpayment(fee £198) leaves

    £5166 2.79% £437pm left £0 interest £79 ( total cost £277)
    less the interest earned on the £4968

    if they will let you overpay more and keep the payment the same you can get the total under the 1% but not by much.

    For the amounts involved the simplest thing is pay it off and start saving again unless you can find somewhere to deposit the £25k that pays something sensible say around 2%.
    • AnotherJoe
    • By AnotherJoe 20th Apr 17, 10:22 AM
    • 6,904 Posts
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    AnotherJoe
    Are you a high rate taxpayer?
    How old are you?
    • TheBlueVoice
    • By TheBlueVoice 20th Apr 17, 4:34 PM
    • 20 Posts
    • 2 Thanks
    TheBlueVoice
    I'm 47, not a high rate tax payer, although within a few quid of the threshold..


    I'm thinking of just paying it off as my calcs say i need to get a savings rate over 1.8% to have the same left at may 2018.

    I've got 30k+ in savings and no other debt.

    Pension is very low and needs serious attention so maybe smarter to dump the 25k in that? Plan to move in a few years though so the 25k would be handy then..
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