mortgage do I pay it off

peterrocketts

I have a £87000 nationwide mortgage (Iam allowed an overpayment of 10% per year which Ive already done this year) which is fixed for the first five years at 2.49% and Iam into three months of it. A couple of things have recently happened to my circumstances.
1 Iam being made redundant by end of March 2016.
2 Iam receiving an inheritance which with some savings I have means I can just pay off the mortgage but I would have to pay an early repayment charge of £4322.59.
I think that even with the early repayment charge and forgetting the redundancy it would still be worth it for me to pay up early.
I don’t know if knowing that Iam going to be made redundant, effects the above in anyway eg how I spend my savings etc.
I would appreciate any feedback and advise

Luckyinlife

It seems like your leaning towards paying it off early

Personally if it was me i would

work out how much interest you pay per month ?
then times this by how long is left on your fixed term ?

If the amount of interest is lower than the early repayment fee just keep paying it till you go on the SVR which then has no fee for repaying it all in full

so for example if you pay £3000 in interest till you go onto the svr you would be £1322 better off just waiting till you go onto the svr to pay it off when ther is no early repayment fee

it would also be nice to keep that amount of money earning you interest for that term which if its a 2-3 years it could earn you 1-2k and youd have more money come SVR time

getmore4less

You will need to crunch the numbers.

With a rate of 2.5% and best savings rates the difference won't be that big and you will get a penalty free overpayment at some point so depending on how big that can be it might be worth waiting.

and the penalty probably gets smaller at some point.

Another option is to see if Nationwide will reduce the term increasing contractual payment.

peterrocketts

Iam paying £699.54 per month so if Ive worked it out right the interest over the 5 yrs with the full 10% overpayment each year is approx £5700. I guess I am leaning towards paying it off early, especially with the redundancy looming over me.

Luckyinlife

peterrocketts wrote: »

Iam paying £699.54 per month so if Ive worked it out right the interest over the 5 yrs with the full 10% over payment each year is approx £5700. I guess I am leaning towards paying it off early, especially with the redundancy looming over me.

I think the 80k in savings would make you around the difference in interest over the 5 years and much more i guess

either way your down 4-5k i guess holding onto it and making that 80k earn you 2k+ would half your interest you have payed over them 5 years you hold onto the mortgage

For example if you put your 80k into a fixed saving account at around 1.8% over 5 years would earn you around 8k in interest alone thus wiping out the interest youv payed for the last 5 years and giving you 3k extra

just something to think about i guess

worst case is you have to pay it which is a great situation either way imo

Teacher2

I wouldn't be too pernickity about the sums as to whether paying off the mortgage will save you more pennies than you would gain in interest. The benefit of being mortgage free is worth its weight in gold psychologically and emotionally. It will give you a feeling of freedom, security and confidence which will assist you in your job hunting and enable you to focus on the future without too much worry. If you had the eighty grand in savings you might well be tempted to use it and capital sums are easily dribbled away for worthy and unworthy causes. Put temptation beyond your reach, pay the mortgage and enjoy the consequences of being debt free.

d70cw6

i would not pay an ERC if it was me. waste of money. overpay what you can penalty free, and invest / save the rest.

peterrocketts

Sorry I ve not replied to your thoughts sooner, but the old saying it doesn't rain but pours definitely fits my situation at the moment.
Thank you all for your input but I believe Teacher2 best understands my situation and sums it up quite well, especially the redundancy. Plus the difference between the early repayment and letting it go full term is very little. Again thanks to every bodies input.

Petal88

I agree with d70 and LIL - it seems as if the only benefit of early repayment is the psychological impact of not having a mortgage "looming". Your argument of soon becoming redundant is another reason why I would personally not chuck the money at the mortgage - you might actually need it if you can't find another job immediately?

pennystretcher

is there a percentage charge if you just pay big OP rather than pay off whole mortgage? (rather than full ERC when you pay off the whole balance) E.g. on my old mortgage 10% OP was free, 1st year into deal anything above that was attracting 2% of the OPd amount, 2nd year it was 1% of the OP amount...

Keeping in mind that if you have savings above certain amount it reduces benefits - unless you are adamant that you will find a job that you can start in right after being made redundant? (also do you get standard package or enhanced? If standard, might be worth trying to get another job before they hand out the packages..)

Jonbvn

d70cw6 wrote: »

i would not pay an ERC if it was me. waste of money. overpay what you can penalty free, and invest / save the rest.

Agreed. This is the MSE way. Why incur the ERC unnecessarily, especially when the future is uncertain? The warm fuzzy feeling of paying off your mortgage must come second in this instance. With numerous current accounts paying 3% you should be able to easily beat (or match after tax) your mtg interest rate.