Overpayment Vs Repayment fee

darrenj

I'm struggling to work out the figures for this...

We have a lump sum £30k which we want to use to make an overpayment with t he nationwide but anything above £500 a month means we have a 4% overpayment fee (3yr Fixed Rate currently 4.28%).

Would it be better to earn 2% in a bank account and overpay £500 every month until the fixed rate ends (2.5 years) or make the lump sum payment and paying 4% but the monthly payments will come down by £150 a month saving 5-6k on the remainder of the loan in terms of flat repayments?

Thanks,

magicdogsbrain

I would be inclined to take the 4% hit - or maybe max out your isa's first and see if you can pay all the yearly allowance of 500 pounds first.

financialbliss

darrenj,

Why don't you speak to Nationwide to re-negotiate your term to something shorter, thus ramping up your monthly payments and not taking the 4% hit.

We're meant to be paying about £425 a month to our fixed rate mortgage, but we've reduced the term, which has upped the monthly payment to ~£900, plus we can still overpay by £500 on top of that.

Worth speaking to them to discuss possible options...

FB.

chirpchirp

Just a thought, how much are the ERC payments? Would it be worth looking for another mortgage and simply gettting a mortgage for the same amount -£30k -erc. Probably not but maybe worth just checking figures.

Jonbvn

Don't pay the 4% ERC! Better to put money in savings and overpay on a regular basis. Max-out your cash ISA's. Note that the limit will rise to £5.1k each from April 2010.

darrenj

Thanks financialbliss,

I don't really like leaving that amount of cash in the bank earning so little interest so torn between just taking the hit to reduce the monthly payments drastically and trying to reduce the amount of interest I will end up loosing - which I'm guessing will be about 1.7% but struggling to calculate.

Will speak to them again - and see if they will adjust the term.

dimbo61

Use whatsthecost to work out how much extra each month it will cost you to reduce the term to 2 years and 5 months ( the end of your fixed term)
Or reduce it to say 5/10 years and use the money sitting in the bank to pay the extra each month.
Save into ISA,s £5100 each from next april.
Save £250 a month each into regular savers Barclays paying 6% before TAX
Dont pay a 4% ERC to Nationwide
Overpaying by £500 a month is £6k a year
If you can double your repayment by reducing your term by a few years this will use up the £30k in 2.5 years without paying a 4% ERC fee GOOD LUCK

Jonbvn

darrenj wrote: »

I don't really like leaving that amount of cash in the bank earning so little interest

Can't you find a better paying savings account? The 1 and 2 year fixes are similar to your mortgage rate, although you have to consider tax.