Mortgage - overpay with penalty or not

eldaniel

Hi all,
I hope someone can give me a good advice on my mortgage. My deal for 5.99% ends in 10.2012. If I overpay more than £500 a month then would have to pay 3% early repayment penalty. I have £5000 which I could overpay now, but is it worth? I will pay £150 penalty and will lose approx. £250 in lost interest (i.e. if I put it in ISA) in next 2,5 years, but I could avoid it by overpaying when my deal ends in 2,5 years. However if I overpay this now I save approx. £800 on interest until the end of the deal. So as you can see I save £400 in a long run, which is still good, but are there any more disadvantages of doing that? Perhaps I missed something, maybe having this £5000 at the end of the deal would help me to get better deal when remortgaging? What do you think about it?

Dan_1976

If all you have in savings is £5k then I would not pay it all off. If its spare and you have other back up funds, I think I would pay it off.

That £400 is better in your pocket than the lenders!

wurlycurly

Why not overpay by £500 per month, then in 10 months you'll have paid the money off your mortgage without incurring the penalty?

I'm soon to be in a fairly similar position and that's what I'm going to be doing.

getmore4less

It gets a bit complex.

Do you have surplus income as well as £5k now. if you do it changes the calculation below.

Assuming not then you need to do the analysis for £500 chuncks month by month untill you stat saving money.

Do the following example with your real numbers.

mortage rate 5.99%
savings rate say 3%
So 3%(annual) saving so on £500 thats £15/12 £1.25pm
Penalty 3%. £15 on each £500

So that is 12 months to break even

Just pay the £500pm you don'r save any money by overpaying.

If it does work out better to overpay don't add the penalty to the mortgage.

eldaniel

Many thanks for your replies guys.
Thing is I consider to pay £5k and to overpay still by £500 pm.

dimbo61

Could you ask your lender if you could reduce the term by a few years ?
That way your mortgage would go up by say £500 a month and you could use the £5K is savings to make up the extra each month

eldaniel

Do you think it is possible? I have asked in Nationwide if they could increase my overpayment allowance but lady said no because the products are fixed and not negotiable. I believe that is true unless you get into serious financial difficulties, which is quite opposite to my situation.

getmore4less

If you reduce the term the normal payment goes up

eldaniel

Yes, I know and I think that would be solution to my question if they would only allow me to do that. which i doubt

dimbo61

Speak to the Nationwide mortgage centre and ask for confirmation in writing that you cant reduce the term ! then see what happens but dont pay any ERC charges.