Overpayment Calculation question

arnesmits

First time poster here, been lurking for quite a while now

Wonder if someone can help me, been doing calculations on this for days but still not sure if I am right.

We have a 2 yr fixed with A&L started November 2007 for 182500 at 5.79%. We have come into some money and am wondering if I should pay into the mortgage. already used up the max cash isa this year..
Problem is that repayments above 10% of the mortgage incur a 3% penalty. Can anyone tel me if the following is correct?

If I pay 40k into the mortgage I will pay in 18K penalty free and then pay 3% over the remaining 22k, so that would leave me with a £760 penalty. So I would pay in £39340

Assuming this is right how do I work out if this is a good idea?
I would say that £40K in a bank account would give me £1920 in interest(after tax at 4.8%) but paying the £39340 in the mortagge would save around £39340 *5.79% is £2277 ??

If this is correct it would be better to just pay into the mortgage, pay the penalty fee and save some money that way? Or did I miss anything

Locoblade

Do the repayment penalties for anything above 10% only apply per year? If so, could you not pay off some now, then some more in December when you're into your second year?

Also are you a high rate tax payer, because if so then you would get less on your savings than if not

arnesmits

Locoblade wrote: »

Do the repayment penalties for anything above 10% only apply per year? If so, could you not pay off some now, then some more in December when you're into your second year?

Sorry, forgot to mention. The 10% is once every year and needs to be done in January.

Jonbvn

In your case I would pay off 18k now. The remaining 22k I would put into NS&I index linked saving certs for at least a year (tax-free).

Review situation after 1yr+ of holding certs.