Worth paying 3% on mortgage overpayment?

[Deleted User]

Hello there! I havent been posting much, but I have this burning question about overpaying my mortgage!

I have £98k remaining on my mortgage with Nationwide - it's a fixed, 3.78% mortgage which will last till 2012. I've got 20k that I would like to use to reduce the amount I owe Nationwide. The only problem is that I will have to pay 3% extra as a penalty.

My question - since the inflation rate is currently sitting at around 4%, would it be worth me paying £20k into my mortgage? Assume I have no interest in stocks and shares and that my alternative would be putting it in a savings account. The other factor would be balancing out how much I'd pay in interest on £20k in one year, had I not overpaid?


Thanks!

Eugene.

Thrugelmir

You should be able to make regular monthly overpayments without incurring the ERC.

Retain around 6 months salary in cash as an emergency fund, using an ISA.

Peelerfart

Purely personally I would rather walk on hot coals than pay a 3% penalty.

I would pay off the most I can without incurring penalty,fill up my ISA,then my wif'es ISA,then put the rest in the best savings account I could find until I'm able to OP again.

dimbo61

Are you mad ? Don't give Nationwide one penny in ERC,s
First call them and check if you can overpay and how much is allowed each month / year. Now they normally allow £500 a month so open an account and put £6k in it. Pay the rest into cash ISA,a and drip feed the mortgage each month until the fix ends then OP the rest

creditcard123

I take it you dont have an offset mortgage which you could then put your money into savings account linked to mortgage.

I agree with previous posts dont pay 3%
The maxing your isa accounts seem a good idea and you could max to 05/04/11 and then put the max in again after that date

Wh05apk

Do not incur a penalty, you are allowed to over pay by £500 per month with NW, so do that, and put the remainder into cash ISAs, repay when fixed rate is finished if you wish.

getmore4less

The calculations get a bit complicated but are simple ones.

First any overpayment that has a charge you pay the charge outside the mortgage that saves a bit.

eg £20k would be £600. but if you overpay £19417 the charge is £583

Next you need to work out what the best savings rate is.

Say that is 2% after tax and the mortgage is 3.78% and you can overpay by £500 without penalty

So £500 costs £15 and saves £1.57pm but is earning £0.83 in interest so net saving is £0.74 per month so it takes 20 months to actualy save by overpaying.

So if you have £20k you should keep £10k back to drip feed.

Now you can get better savings rates so it will be even more time, and if you want to keep some back for emergencies then....... well you get the idea.