Paying off a lump sum - options

dond

Hi - this is my first post so please be gentle!

I am wanting to pay a lump sum of £20k off my mortgage which is currently about £60k. I have £23k on a fixed rate of 6.49% and if I wait until 1st Feb then I would incur an early repayment charge of £472. The rest of the mortgage is on the Halifax Standard Variable rate of 3.5% and there are no early repayment penalties.

Would I be better incurring the early repayment charge and paying the £20k off that portion of the mortgage, leaving me with the lion's share of my mortgage on the lower standard variable rate, or vice versa.

Not sure what the savings would equate to. I have 10 years 8 months left in total on the mortgage and may be in a position to make a further lump sum payment of about £10k this time next year (hopefully - fingers crossed). Don't know if knowing that helps any.

Thanks for your help. Sue

motch

Hi Sue

You don't say how long the £23k is fixed for, although i'd guess it's 2 years? as it sounds like you'd be charged a 2% fee from 1st feb.

6.49% rate is quite high so be worth it if you could afford to.

dond

motch wrote: »

Hi Sue

You don't say how long the £23k is fixed for, although i'd guess it's 2 years? as it sounds like you'd be charged a 2% fee from 1st feb.

6.49% rate is quite high so be worth it if you could afford to.

Hi there - the £23k is fixed until 1 Feb 2012 when it reverts to the standard variable rate the rest of the mortgage is on.

motch

Would be worth it as long as you haven't any higher rate debts (pay highest rates off first) and make sure you have a few grand in reserve for any emergencies.

dond

motch wrote: »

Would be worth it as long as you haven't any higher rate debts (pay highest rates off first) and make sure you have a few grand in reserve for any emergencies.

Hi Motch - thanks for your help. I have no other debts and can put this £20k aside solely for the mortgage so I know I'm lucky being able to do this.

I shall ask the Halifax about ensuring the lump sum comes off the fixed product and take the hit on the early repayment charges if it means I'll be better off interest rate-wise in the longer term.

Charterhouse

Hello.

By paying it off the floating rate part you save yourself £805 per year (assuming interest rates remain constant). By paying it off the 6.49% part you save yourself £1,490ish a year. The difference is more than the penalty so it is worth it, even if interest rates soar after a year.

However, there is a trick that MAY help you here. Many lenders will allow you to amend the MATURITY or what they call the TERM of the mortgage without penalty. Therefore, what you may be able to do is amend the TERM of the mortgage to 3 years. This will increase your monthly payments to around £1,800. In a year you will then have paid down the £20k without penalty. Then increase the TERM of the mortgage back up to whatever it is now.

dond

Charterhouse wrote: »

Hello.

By paying it off the floating rate part you save yourself £805 per year (assuming interest rates remain constant). By paying it off the 6.49% part you save yourself £1,490ish a year. The difference is more than the penalty so it is worth it, even if interest rates soar after a year.

However, there is a trick that MAY help you here. Many lenders will allow you to amend the MATURITY or what they call the TERM of the mortgage without penalty. Therefore, what you may be able to do is amend the TERM of the mortgage to 3 years. This will increase your monthly payments to around £1,800. In a year you will then have paid down the £20k without penalty. Then increase the TERM of the mortgage back up to whatever it is now.

Thanks for the figures Charterhouse. I can see its worth doing. Hadn't thought about adjusting the term. Will discuss with hubbie tonight. Thanks for your help.