Mortgage Repayment: ERC -vs- Daily Calculated Interest

hotyogabunny

I hope this is the right place for this question about paying off my mortgage early.

The fix ends September 2014 & the ERC is 4% on all over payments. A repayment mortgage, I pay £948/month with a remaining term of 11 years (which is going to tumble to 11 MONTHS, worst case scenario being I pay it all off in the savings accumulated in that time) :beer:

The interest on my £95k outstanding loan is 4.59% & I am REALLy wanting to pay it off but that pesky ERC of 4% is looming over my not-very-good-at-maths head & even given the fabulous (okay so I'm totes addicted to them) overpayment calculators/ditch my fix gizmo etc I STILL can't work out whether I will be better off dumping the £50k i've got saved which is just sitting in my 3 x 123 accounts doing very nicely thank you very much but obvs still not earning what I'm PAYING in interest.

Oh my brain! :mad:

I am permitted to make a 10% overpayment without penalty on 1st January 2014 which needless to say I'm going to do, but what about now/next year?!

Stay put or pay it off?!! :rotfl:

I'm able to throw an extra £1k/week at it. (shoo! shoo! pesky mortgage be gone! lol!) :rotfl:

Thank you so much in advance!

amnblog

this does not make much sense - please clarify what your question is

hotyogabunny

Thanks for responding even though it was not very clear to you.

Not sure I can make it much clearer but I will try!

• I have a 95k mortgage which is fixed at 4.39% until ends September 2014
• ERC: 4%
• Savings: £50k

I would like to know whether paying £50k now & £1k/week thus attracting a 4% charge is more or less expensive than sitting tight for another year.

Just wondered if there were any financial gains in getting my low interest paying savings doing something potentially more efficient.

Is that any clearer?

Thanks in advance.

dimbo61

I would not give the lender one penny more than you need to so for me paying 4% ERC is a none starter.
Your interest rate is 4.59% and I have no idea what you are earning from the 123 account but I would be filling a cash ISA, look at regular savers and keep adding to the 123!
I would pay off 10% in January 2014 and build up savings to pay a lump sum off come september 2014.
You should also consider what you will do once the mortgage is cleared !
Make sure you fill an ISA either cash or shares or both each year.
If you can save £1K a week you need to look at long term savings and pensions!

hotyogabunny

Thank you so much for responding!

My cash isa for this year is full & the 3 x 123 accounts paying 3% + cashback will be maxed out at the maximum amount upon which interest is payable in another 10k.

Thanks for the advice on the pensions; really should return to that beast at some point. At 40 don't I know it!

I'll be saving £1k/week for the deposit on my next place while I decide what I'm going to do. I have a specific apartment in mind & they don't come up very often so I thought it would be nice to be mortgage free during that process!

Thanks again.

dimbo61

It is all about the money at the end of the day!
If you can save £1K a week you are well on the way to buying your dream home while keeping your existing property if you want to rent out as a long term investment.
If you can build up 30% equity I am sure you will find a BTL Lender and then build up savings for a good 25% deposit on the next property.

hotyogabunny

Great minds think alike! I realise I'm doing things perhaps not the most tax efficient way but just it's the psychological & financial security of owning fully one property while free to save for the as you so rightly point out - dream home which will be my forever home, that too will be paid off at the same rate.

I like the thought that whatever happens I've got my own little sanctuary with nothing but ground rent & service charges to contend with.

I like the idea of releasing some equity from said dream home to finance the next BTL purchase. Thinking ahead big time; brilliant idea.

Thanks for your warm & informative responses Mr. Dimbo; gaining some financial clarity with this is very much appreciated.

getmore4less

many calculators are useless for doing proper number crunches, last time i looked at the "ultimate" one it had so any faults i had to give up.

learn how mortgages work and you can use a basic calculator to do the numbers properly or do a custom spreadsheet.

hotyogabunny

Thanks getmore4less, I did have a look at the long drawn out equations but they were too baffling!

The interest is calculated daily plus I have a 4% charge on every payment I make.

I know that number crunching comes easier to some of the clever brains on this forum so thought it would be a good place to enquire.

Yorkie1

Without knowing anything about your particular circumstances, I'd agree with the pension and long-term savings references. The earlier you start with these (i.e. now), the longer they have for compound interest etc to accrue, and you get tax relief on the pension contributions.

I know it's attractive to be mortgage free, but you don't want to be in poverty in retirement.

hotyogabunny

I'll be mortgage free this time next year so will get onto that as soon as that's done & dusted.

Thanks yorkie