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Pay off now, or wait for ERC to expire?
Dagadog
Posts: 17 Forumite
I will shortly (a few months) be coming into some money which will allow me to pay of my mortgage, which is in three parts (all repayment).
The first two sub-mortgages are have very low rates with no ERC, so I'll pay them off as soon as I have the money available. The third part is currently fixed at 3.59% until April 2017, and will be around £64,000 when my mum's inheritance is paid. It had an ERC of £1925 as of 31st December.
How do I work out whether it will be cheaper to pay off the mortgage completely and pay the charge, or to maintain the mortgage for the extra 2 years overpaying the maximum every year until the ERC expires?
The first two sub-mortgages are have very low rates with no ERC, so I'll pay them off as soon as I have the money available. The third part is currently fixed at 3.59% until April 2017, and will be around £64,000 when my mum's inheritance is paid. It had an ERC of £1925 as of 31st December.
How do I work out whether it will be cheaper to pay off the mortgage completely and pay the charge, or to maintain the mortgage for the extra 2 years overpaying the maximum every year until the ERC expires?
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Comments
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ERC = £1925, so that's our target
Your mortgage is currently £64,000, so it is accruing interest at a rate of £2,300 (or a smidgen under) each year, at 3.59%. (64,000 * 0.0359)
Over the next 20 months (until April 2017) you'll accrue roughly £3,800 in interest on the current mortgage capital. (2300 / 12 * 20)
Obviously that number won't be quite as high, because you'd be paying off some of the capital as you go along, so without knowing your monthly payments it's impossible to be totally sure, but it looks VERY likely that it works out cheaper to just pay the ERC.
(Be aware, I'm not a financial advisor or accountant, nor do I play one on TV - you should probably at the very least check my sums)"You did not pull yourself up by your bootstraps. You were lucky enough to come of age at a time when housing was cheap, welfare was generous, and inflation was high enough to wipe out any debts you acquired. I’m pleased for you, but please stop being so unbearably smug about it."0 -
Duh! I used the mortgage overpayment calculator on this site. I will save £1300 by paying it off early.0
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The "Duh! was aimed at myself.0
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Did you take into account the overpayments you are allowed to make each year without penalty when using the calculator?
Don't know if it lets you do that but it may make all the difference.
Also - You say as at 31st December. Is that December this year or December last year? Depending on your lender (I think) the charge will have reduced simply by virtue of the fact you're 8 months further in (assuming December last year).0 -
How low is low on the low bits.
It will always be worth paying of some of the ERC mortgage BUT keep some back to do max ERC free overpayments.0
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