Pay off mortgage with penalty or not??

siovas

Hi, My husband will have a retirement lump sum available which we could use to pay off our relatively small mortgage (my husband is due to retire but I'm still working full time with a minimum of 5 years to go on a reasonable salary). Our mortgage is fixed until 2019 and due to finish in 2024. Can anyone advise on pros and cons of paying off the whole mortgage, a portion or waiting until the end of the fixed term. I know I haven't given specific details but I was wondering whether there was any general advice.
I am going to attempt to work out the interest over the remaining fixed term and compare to the early settlement penalty.
Siovas.

AnotherJoe

The general advice would be, give the specific facts

It depends how much is outstanding, the mortgage rate, the ERC for paying all or some of it back, etc etc .

siovas

53,000 outstanding, fixed at 3.39% until 2019. 3,000 redemption penalty for paying all off immediately. Due to finish mid 2024.

ViolaLass

Can you overpay at all without penalties?

amnblog

You will be paying £3K in fees to save £5K ish in interest.

Whether you consider that a good deal is a matter for you.

It may be that your redemption charge lowers on the annual anniversaries and that may give you the opportunity to reduce your costs.

Some products allow you to overpay without limits and only charge if you redeem the lot which could be another useful option.

siovas

Thanks for working out the interest for me, that was very helpful in making a decision.
I can overpay 10% of whatever the capital is on the 1st January each year. i.e. I can pay 5,300 any time before the year end and then there is a new 10% available to overpay the next year.

ViolaLass

Would overpaying leave you with enough emergency savings?

getmore4less

siovas wrote: »

53,000 outstanding, fixed at 3.39% until 2019. 3,000 redemption penalty for paying all off immediately. Due to finish mid 2024.

When in 2019 and 2024? to the month is important and what's your normal payment

if we work on mid 2024 as 8 years and mid 2019 as 3 years

£53k @ 3.39% 8y that's £631pm

interest £4500 after three years and then penalty free.

overpay by £5k penalty free now, new payment £571pm interest £4000

with another over payment in Jan that will reduce further.

Also there is the potential to reduce term that will reduce interest payments by increasing regular payment(lender may charge to do that).

There is a distinct possibility paying off may not be the optimum option especially if you can generate some income from the lump sum.

the exact dates will be important to exact number and the options for overpaying changing term and what rates you can get on savings.

minimike2

siovas wrote: »

Thanks for working out the interest for me, that was very helpful in making a decision.
I can overpay 10% of whatever the capital is on the 1st January each year. i.e. I can pay 5,300 any time before the year end and then there is a new 10% available to overpay the next year.

Don't forget if you redeem the ERC will be paid on the full balance, not 90% of the balance, so to minimise the cost of the ERC should you choose to redeem, it would be better to make use of the 10% allowance in the first instance, then redeem on the remaining balance.

siovas

Thanks you very much, that has given me food for thought.
Yes, I can see that paying the penalty free 10% will bring down the interest YOY.
Also, I do not think that Santander charge for increasing the monthly payment to reduce term.
Regards.

siovas

minimike2 wrote: »

Don't forget if you redeem the ERC will be paid on the full balance, not 90% of the balance, so to minimise the cost of the ERC should you choose to redeem, it would be better to make use of the 10% allowance in the first instance, then redeem on the remaining balance.

Good point, I never thought of that. Thanks.