redemption penaltys and early repayment charges

dimbo61

Hi barberboy,
You have a choice you can either
1 pay off the mortgage and pay the £1.8k ERC or
2 reduce the term to 3 years and 3 months so that your mortgage finishes at the end of your fixed term ( check with your lender if you have a fee to pay for changing the term)
while you are on the phone you could also check if you are allowed to overpay your new monthly payment ( Nationwide allow £499 a month)
This would reduce your debt as fast as you are allowed
At the same time you need to get the best rate you can from your savings by investing in cash ISA,s ,regular savers, bonds ETC while drip feeding the mortgage each month YOUR CALL

chirpchirp

Some sensible advice from Dimbo! What would the total amount of interest be if you reduced the term to 3 years and 3 months?

If by paying the mortgage off early you save much more than 1.8k it's probably worth taking the hit and paying the ERC.

barberboy

Hi,

Thanks for all the advice,i have pondered over this already about reducing the term down and making huge payments plus my max overpayment but i have done the maths and as mark says, the ERC is actually good value for money, it is the lesser of 2 evils.

It just seems soul destroying because its like giving away money for nothing(i know its not but you know what i mean)

Hard decision to make and it has stressed me out (i am sure some of you could tell) and i apologise if i came over a bit sharp at the start of the post. I am going to take the hit on this and be mortgage free at 30. There is no better way to invest my money. Lesson to be learned i guess is think long and hard about 5 year fixed deals if you think theres a chance you will want out as theres a hefty price to pay.

Thanks again for all the advice, yous are a credit to this website, i really mean that

Cheers again!

_Andy_

Barberboy - apologies if I came across as rude in my post - not my intention but with hindsight it was pretty blunt.
There is a tendency on MSE forums for people to complain about terms of agreements even though they happily agreed to them which was why I picked up on you calling the ERCs 'harsh'- anyway my apoligies, I could have been more polite and at least expanded on my point.
Anyway good luck with the mortgage-free goal, that's excellent - credit to you (no pun intended)

MarkyMarkD

Thanks, barberboy, for the thanks.

It's good for people (not you, but people generally on MSE) to recognise what amazing value ERCs are right now. It really is worthwhile to overpay on your fixed rate mortgage - even if it has ERCs - because you won't get the same risk-free return anywhere else.

Obviously if your mortgage allows routine monthly ERC-free overpayments (and many lenders allow £499 a month or something similar) that's even better. But even if you have a big lump-sum to throw at your mortgage, do the sums before thinking "it can't be worth paying an ERC".

The higher the rate, and the longer the remaining fixed term, the more true this is likely to prove.

dimbo61

Hi " I have done the maths"
I am trying to work it out using "whatsthecost" and taking the mortgage over 3 years ( cant do 3y 3m!) but I dont know what your mortgage amount is £45,000!
If you reduced the mortgage term to 3 years ( which you cant !) you would only pay about £4k in interest and your payment would jump up by £1000 a month.
Now if you can overpay on top of that for say 2 1/2 years to bring the balance down as fast as possible PLUS earn as much interest as possible from savings you might pay less in interest over 3 years than you will pay out ERC costs.
Just an idea GOOD LUCK

barberboy

_Andy_ wrote: »

Barberboy - apologies if I came across as rude in my post - not my intention but with hindsight it was pretty blunt.
There is a tendency on MSE forums for people to complain about terms of agreements even though they happily agreed to them which was why I picked up on you calling the ERCs 'harsh'- anyway my apoligies, I could have been more polite and at least expanded on my point.
Anyway good luck with the mortgage-free goal, that's excellent - credit to you (no pun intended)

Cheers,

I am sure you can imagine i have been pretty stressed about it all, big decision!
I feel a lot better after speaking to you guys.

Cheers
:beer:

getmore4less

dimbo61 wrote: »

Hi " I have done the maths"
I am trying to work it out using "whatsthecost" and taking the mortgage over 3 years ( cant do 3y 3m!) but I dont know what your mortgage amount is £45,000!
If you reduced the mortgage term to 3 years ( which you cant !) you would only pay about £4k in interest and your payment would jump up by £1000 a month.
Now if you can overpay on top of that for say 2 1/2 years to bring the balance down as fast as possible PLUS earn as much interest as possible from savings you might pay less in interest over 3 years than you will pay out ERC costs.
Just an idea GOOD LUCK

One trick with the calculator is to set interest only and a payment then check the details, adjust the payment till it is paid off in the term you want.(set the term to more than you need in the calculator)
eg for £45000 @ 5%
paid of in 3y is £1,348.69pm
paid of 3y3m is £1,253.00pm last payment is£1,233.18

dimbo61

Using the £45,000 mortgage at 5.63% over 3 years you would pay £4,000 in interest. Now if you could earn over £2k in interest from your investments while paying the new bigger mortgage payment each month you might be able to save money!

barberboy

dimbo61 wrote: »

Using the £45,000 mortgage at 5.63% over 3 years you would pay £4,000 in interest. Now if you could earn over £2k in interest from your investments while paying the new bigger mortgage payment each month you might be able to save money!

Thanks for putting so much effort into my plight, its appreciated.

If i dont pay off my mortgage, i will pay somewhere in the region of 10k in interest over the next 3 year 3month odds. My best way of understanding the interest payments is to break it down pound for pound. I pay around a tenner a day in interest, my ERC is around £1700, it changes everyday because they add interest daily, this figure is 3% of my balance plus they add a £90 admin fee in for good measure(id love to see them justify that admin fee)

As i said, i will bite the bullit and pay it and try not to think about paying the charge but as mark says, think of the good value pound for pound i am getting and the interest i will be saving as id be paying over 10k in interset.

When i look at it like this, it is a no brainer. 1.7k+£90admin fee or 10k in interest.

Im doing it.

Cheers again

:beer: