High interest mortgage Over payments / Pay off early

ryan87

Hi guys avid reader of these forums

Im currently going thro the process of a mortgage due to a combination of things being self employed and a default or 2 on credit file the mortgage im going for is a 6% fixed for 2 years then look goes down to 4.8% but i can obviously change this around at the time.

facts and figures for you
67k borrowing at 6.4% at £450 a month on a 90k house
ERC at 3% for year one year 2 is then 2% ERC

anyway My questions is With a ERC of 3% in year 1 would it be silly for me to overpay as and when i can i will only be over paying if i can put down a big payment like 5k or so

With ERC being 3% this would mean i would pay £150 in charges on 5k and £300 charge on 10k

So the charges arnt that bad really because by paying off 10k off the mortgage brings the mortgage down by 7 years and takes off 29k in interest from the original term of 25 years

Im putting this up now so i can plan ahead going forward

Any help be great thanks guys

ryan87

Any thoughts guys :j

edinburgher

Doesn't your mortgage allow any free overpayments?

I might be misunderstanding this, but normally an OP returns a saving at the real rate of your mortgage. So if you have a 6% mortgage with no ERC, an OP will save you c. the amount of the OP at 6% for the duration of your mortgage term.

With an ERC, you have to subtract the cost of the ERC from the real saving, so your OPs would appear to save you 3% in real terms for the duration of your mortgage term.

If you pay basic rate tax, you can beat 3% net on savings, but not for huge amounts.

Personally? I'd hang on to the cash, the fact that you've had a default in the last 2 years suggests that circumstances/your ability to plan may conspire against you, better safe than sorry?

ryan87

Hi thanks The mortgage itself is fixed for 2 years at the 6.4% so the ERC is 3% for the first year of the mortgage and 2% for the second year of the fixed term

My inital idea was to save as much as i can for 2 years weather this be 5k or 50k and pay it off when the erc drops off when i go on the SVR

But i was wondering if i can pay off a bit during the ERC period of 2 years should i or just wait till it goes to the SVR

The defaults are full payed off Ya from now on ill always have a 6-12 month emergency fund

Thrugelmir

Does the ERC's apply to overpayments?

What product have you applied for and which lender?

ryan87

Ya the policy states 3% of loan amount repayed ERC in first year then 2% in year 2

The term is over 25years but the dream is to be mortgage free before im 35 im 28 now

elantan

but is that over payments or paying off ... i have an ERC myself ... but i am allowed to over pay by £500 a month and it will not affect the ERC, if i pay 1p over that however i do get penalised

ryan87

I see all its says is 3% of the amount payed plus a £120 charge for overpayments

So if i payed £1000 overpayment i would pay a total of £150 in charged but that 1k would bring the total mortgage term down by 10 months and take a 4k interest of the total term

Or would it be more efficient to save for 2 years and pay off a larger amount hopefully then