Overpayment newbie; Overpaying by more than annual limit

Theodoris_Zagorakis

Hi all, first post in this particular part of MSE. I'll try to keep it concise and to the point.

I have £126500 left on my mortgage with 23 years and 9 months remaining (hypothetically). I'm currently paying 3.09% fixed rate and will be highly likely to change my deal when it expires in August 2012.

We have been lucky enough to come into a sum of money which means we would be able and willing to make a bulk sum payment of up to £30000. This mortgage only allows overpayments of 10% per annum however, with a 3% charge applying after that (meaning our overpayment limit to Aug 2012 is £12700 ish).

I've tried with some figures on a spreadsheet but it's causing me nothing but a slight throbbing pain behind the eyes! I wanted some advice from you guys about what you think is best, bearing in mind we'd like to aim to pay our mortgage off within 10 years, and be as efficient with our money as possible. Should we:

a) Pay 99% of annual overpayment allowance, and overpay tiny amounts per month up to August 2012 to reach the overpay limit without charge before changing our deal.
b) Pay the maximum we can £28-30k, and take the 3% charge on the overpayment (£15.5k-£17.5k).
c) Any other suggestion!

Also, bearing in mind b) should we accept the new lower monthly repayment or continue to pay our current monthly sum (or indeed more) if we deem it affordable and accept the 3% extra charge on top of that.

Any advice would be more than welcome

dark^knight

Option a for me. Invest the rest in a savings account and then repay max OPs every year.

[Deleted User]

It seems sensible to pay as much of an overpayment as you can now without paying any ERC (it doesn't seem to me that that would make financial sense - you're paying a fairly low interest rate on your mortgage), and personally I would ask for the term to be reduced rather than the monthly payment (as your goal is to be mortgage free in 10 years, not to reduce your monthly outgoings).

Then I would put the remained of the lump sum that you have got earmarked for mortgage overpayment in the highest paying savings account as you can - using this years ISA allowance if you haven't already (could possibly get a rate equivalent or just below what you are being charged in interest on your mortgage), and the remainer in the highest paying instant access account you can find.

You will be able to put this towards your mortgage reasonably soon anyway (less than one year away) when your fix ends.

Just my opinion,

D9