Help needed: Should I pay off mortgage?

Lavandula

Hello,

I have a repayment mortage with 34K left to pay. I am currently on a fixed rate (3.99%) that will end in Feb 2012. I have enough savings to pay the mortgage off (about 45K). The savings are in an ISA and ordinary savings accounts and not earning much interest.

Should I pay it off now and pay the Early Redemption Fee (about £1000) or wait until the fixed term ends?

I'm not sure what to do. I am also going to be made redundant in 12 to 18 months time.:mad:

Any advice, gratefully received..

Lavandula

beecher2

I'd overpay whatever you're allowed to without having to pay an ERC and then move your savings to better rates - the savings boards can help you with that.

huzzer84

If you pay it off, you pay no interest but pay £1,000.

If you carry on and save (the £34k is the relevant bit), even at 2% after tax, 34k at 2% for 11 months is £623. The interest on 34k at 3.99% for 11 months is £1,244. Therefore a net cost of £621, making this the cheaper option, but only if you do what beecher2 says and move the savings to where it will earn enough interest.

In February 2012, this is a separate decision. From a "which is cheapest" point of view, you'll struggle to get savings above the rate you pay on the mortgage, so paying it off will be cheapest at that point. However, if you are being made redundant then you will need to consider whether you are able to live within your means - hopefully that won't be a problem as you'll be mortgage-free!

Lavandula

.......psychologically (with a looming redundancy) having no mortgage would cheer me up, whether or not I lose a few quid in interest.

cathh70

Hi Lavandula, has your mortgage got a facility for unlimited overpayments?

You sound to be almost in the same position we were - fixed rate, ERC, enough savings to cover mortgage. We chose (with unlimited overpayments allowed) to pay as much as possible without affecting the ERC (was £3.5k, then £2.6k) planning to carry on paying a few pounds (£20) a month until the ERC expired in 5 years time.

The circumstances have changed now because our mortgage provider has waived the ERC so we can pay off fully.

I personally would wait until fixed rate expires, but then again, piece of mind is alot too

Lavandula

I'm making £500 a month overpayment (max I am allowed). Could I reduce the term to 2 years? (not sure if this is allowed)would this affect the ERC?

cathh70

Your fixed rate ends in 11 months - does the ERC finish at the same time? I'm not sure there would be any point in reducing the term. Perhaps another poster can help on this part.

Work out how much interest you are paying / will pay over the next 11 months (and also could earn on the savings) and compare to the the amount you would save by paying off now less the ERC. You will be able to assess if it is worth paying off now or waiting.

dimbo61

Ask your lender can you reduce your term to 11 months? My lender charged me £50 to reduce the term so as long as you dont pay it off before the end of the fix no ERC,s
If not bite the bullet and pay it off now so that you dont have over £16K in savings !!!!!

Engeroosi

cut the term which will mean your monthly payments are alot higher, then also over pay 500£ per month until you have £1 left to pay, then leave that unpaid until erc expires