What penalties are incurred when paying a part of a fixed rate mortgage?

jam_man

Hi,

I was wondering if someone could give me a little guidance when it comes to paying off a lump sum off of a mortgage.

I have essentially 3 mortgages with Natwest

10k fixed rate until 2010
50k fixed rate until 2013
50k fixed rate until 2013

We have recently come into some inheritance and should be receiving about 80k in the next few months.

I would like if possible to make a huge dent in my mortgage and will be going to see the bank mortgage advisor later this weekend but can anyone shed some light on what it would cost ?

I assume to pay 80k of the 110k I owe will result in some penalty that I will need to pay?

Is there anyway I can get off of those fixed rates as the rates are around 5%, which I assume is much higher than currently available?

Appreciate any advice.

dimbo61

You need to read the paperwork that came with each part of the mortgage!
As you have 3 parts you may have 3 different ERC,s
You could also ring the Natwest mortgage centre and ask them what you currently owe and any ERC,s for paying off early.
Have you got any ISA savings ? £5100 each in cash ISA,s
Consider Regular savers and Lloyds TSB vantage account paying 4% ( balance £5/7K)

jam_man

Thanks for the reply.

Yes I do, but reading those documents sends me to sleep and Ill leave that to the mortgage advisor on Saturday.

As for savings we are currently looking to clear as much of the mortgage as possible at present, we will keep some to the side for those rainy days but if I can get my mortgage down to 30k or so Ill be delighted.

Im assuming they will want a fee to pay that off and just wondering how much exactly that may be.

LilacPixie

It varies from deal to deal so no one can tell you i'm afraid. I think what Dimbo was getting at with savings is it is possible to match or beat 5% with a mix of regular savers Lloyds and FD being two that come to mind, Child regular savers if you have kids etc etc

jam_man

I see, I guess a ballpark was what I was after, ie do they charge 1% or 10%? £100 or £10,000 ?

Any sort of guide would do.

As for savings, yes I can see benefit to saving if I could beat the interest I pay on the mortgage but to be honest I just want to get rid of the mortgage. Being mortgage free is very attractive and even if Ive got 30k left after this I can clear that in 5 years.

LilacPixie

well i have had 2 deals and then this on. deal 1 was halifax 3 year fix 5% 1st year, 4% 2nd year 3% 3rd year. Deal 2 egg 2 year fix 6% each year and then my new 2 year fix that isn't even fully sorted yet which is 5% 1st year and 3% 2nd.

Really it is totally dependent on the lender and the particular deal you have got so only way to know is read your KFI's

jam_man

Those were the percentages you had to pay if you paid a sum off ? So if it was 50k you would pay £2500 if it was 5% ?

dimbo61

Jam man this is where you need to be clever!
Now the 10K part comes off the fix in 2010 so you can clear that soon!
The other 2 parts are fixed until 2013 so read the paperwork and ring your lender,s mortgage centre ( dont bother with the SALES PERSON in the branch!).
Ask can you reduce the term so that the mortgage finishes in 2013/2014/2015
This will mean a huge increase in mortgage payments each month but you just drip feed your inheritance money from a current account as well as your normal payment.
use "whatsthecost" to work out how much extra this would cost each month.
Now as a rough guess paying off £100K in 3 years works out at £3000 a month,£100k in 4 years is £2300 a month,£100k in 5 years is £1900 a month.
5% fix is a good rate and you wont get much better ( maybe 4% with fees) so DO NOT PAY ANY ERC,s just change the term.
I have just saved you £5000 at least !!!!

blueberrypie

As others have said, there's a huge variation in what ERC fees there are - I've had a mortgage with an ERC of 6% and another with an ERC of 1%. You really need to look at your own mortgage documents. Drink some coffee if you need to ;-)

It *might* be worth your while to remortgage and it might not - but actually a 5% fixed rate isn't bad. You've probably been hearing people talk of being on 2% and 3%, but those are tracker-deals, meaning they follow the base-rate - and when the base-rate goes up, so does their mortgage rate. There are fixed-rate mortgages around which are under 5%, but you'd need to crunch the numbers to determine if paying your way out of what you've got is the best route to mortgage-free.

jam_man

Thanks for the feedback everyone.

Reducing the term sounds interesting and I'll speak to the mortgage adviser the weekend to see if thats possible.

Id rather just get it all paid off, but if that saves me a huge amount then may have to just live with it for a few years.

blueberrypie

jam_man wrote: »

Thanks for the feedback everyone.

Reducing the term sounds interesting and I'll speak to the mortgage adviser the weekend to see if thats possible.

Id rather just get it all paid off, but if that saves me a huge amount then may have to just live with it for a few years.

Remember that the "mortgage advisor" at your bank is not independent, nor whole-of-market. He/she is a bank employee, and can only offer advice about the products your bank sells.