Mortgage overpayment and penalties

misspiggie69

Hello All,
I'm new to this site and after some advice...

I have a £220,270 fixed rate mortgage at 5.99% over 26 years (tied in for 3 years from 01/08/2008). I have extremely lucky and have recently inherited £100,000.
I am allowed to make overpayment on my mortgage of 10% per year without penalty, so 01/12/2008 I am paying off £22,027, then a further £22,027 on 01/12/2009 and again on 01/12/2010. I will then have about £44,000 left to further reduce my mortgage before looking for another deal in August 2011. (I am reducing my monthly payments, not the term as my mortgage is huge (almost £1400 per month and I am really struggling at the mo).

Is this the best thing to do, or am I better off just paying off £100,000 on 01/11/2008 and paying the £6608 penalty for going over the 10% a year limit?!

I was trying to use a amortization spreadsheet to work it out, but my brain is now frazzled!!!

Any help would be greatly appreciated!

Many thanks...

Joe_Bloggs

@misspiggie69
I suggest, pay off the amount you are able to pay off this year and use the considerable time remaining to work out a strategy to do something with the remaining funds. I hope the 22K payment would contribute to an immediate capital reduction and hence a future reduction on month by month interest charged.

Some scummy lenders take note of their overpayments year by year. Hence the timing of overpayments is crucial in making overpayments to take the greatest benefit.
Some lenders calculate the interest on the outstanding capital on a daily basis.
J_B,

misspiggie69

Thanks for the response. Yes, my payments will drop by about £140 per month (I had hoped £22k would have a bit more impact!), so will ease things a little...
My interest is calculated on a daily basis, so will benefit from that also...
I'm looking forward to seeing my mortgage balance dropping below the £200k mark once they recieve the cheque!

Thanks again...

getmore4less

misspiggie69 wrote: »

Hello All,
I'm new to this site and after some advice...

I have a £220,270 fixed rate mortgage at 5.99% over 26 years (tied in for 3 years from 01/08/2008). I have extremely lucky and have recently inherited £100,000.
I am allowed to make overpayment on my mortgage of 10% per year without penalty, so 01/12/2008 I am paying off £22,027, then a further £22,027 on 01/12/2009 and again on 01/12/2010. I will then have about £44,000 left to further reduce my mortgage before looking for another deal in August 2011. (I am reducing my monthly payments, not the term as my mortgage is huge (almost £1400 per month and I am really struggling at the mo).

Is this the best thing to do, or am I better off just paying off £100,000 on 01/11/2008 and paying the £6608 penalty for going over the 10% a year limit?!

I was trying to use a amortization spreadsheet to work it out, but my brain is now frazzled!!!

Any help would be greatly appreciated!

Many thanks...

How can you be struggling you have £100k in the bank, use the interest to help with the payments.

Just overpay and invest the rest in the highst interest places you can starting with the ISA allowance.

When you pay off the £22k ask to keep the payments the same and overpay on the monthly payment it shouldn't count towards the 10%

misspiggie69

Hello, thanks for your responses...

Early repayment charges apply until 31/10/2011.

Mortgage repaid before 31/10/2009, penalty is 3% of the amount borrowed

Mortgage repaid before 31/10/2011, penalty is 2% of the amount borrowed

My Dad is keeping the money for me (I am only allowed to use it to reduce my huge mortgage) so I'm not making any money from interest. He's letting me have the permitted 10% each year to pay off mortgage (it's a joint mortgage in his name too), but asked me to find out whether it would be worth paying the penalty and paying the whole £100k off in one go.

Many thanks in anticipation of any help, guidance you can offer...