Overpayment calculations with early repayment fees help please

tomloaf

Can someone help me with the mortgage conundrum as my brain is going dead with this.


I have about £25000 left on my mortgage. I am currently tied in for another 7 years on a fixed rate at 4.49%. I have recently come into some cash due to an inheritance.

I can pay 10% off without any penalties each year which I have done this year. If I over pay more than that I get charged 5%


With the fact that the interest rates are so low at the moment 0.5% can someone do the calculation with working so I can replicate at currently these numbers are approximate.


Should I pay back the 10% as well as my normal payments for the next 7 years and put the other money in savings or should I pay off all my mortgage now and the early repayment fees?


Help!!

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Thrugelmir

While interest rates are low. You can do better than 0.5% on your savings. If you make 10% overpayments every year. Then your mortgage won't last anywhere near the full 7 years.

tomloaf

Thrugelmir wrote: »

While interest rates are low. You can do better than 0.5% on your savings. If you make 10% overpayments every year. Then your mortgage won't last anywhere near the full 7 years.

I know it wont last the 7 year but what is the most cost effective method. Re saving i know i can get a little better but not much.

getmore4less

Does the ERC stay at 5% or drop during the term.

tomloaf

getmore4less wrote: »

Does the ERC stay at 5% or drop during the term.

It does drop during the term but i can't rememebr by how much and when so to save the hassel I thought it best to just ask for the 5% worse case in the calculation and then I can add that in later if needed.

ViolaLass

Can you shorten the term?

AnotherJoe

So in summary, if you pay it all off, there is a 5% charge ?
But your mortgage rate is only half a percent less than that so you are hardly worse off anyway! You'd pay 5% now instead if 4.5% over the next year. But just once.

So if you paid it all off now, you'd pay essentially one years interest, 5%, on the whole sum, and avoid paying pretty much the same, 4.5%, for the next seven years on what would be half* that. Or 3.5 years overall.
So you'll be quids in to pay it all off right now as it will save you 3.5 years interest which at 4.5% is more than £3k.
You could get into the detail, eg you might make 1-2% if you put that £25000 in a savings account but savings rates are dropping all the time and the amount will diminish as you pay off the the percent max each year, so I doubt that would make a big dent.

All this = Pay it off asap.

*Half, because on average that will be the amount outstanding each year for seven years.

tomloaf

AnotherJoe wrote: »

So in summary, if you pay it all off, there is a 5% charge ?
But your mortgage rate is only half a percent less than that so you are hardly worse off anyway! You'd pay 5% now instead if 4.5% over the next year. But just once.

So if you paid it all off now, you'd pay essentially one years interest, 5%, on the whole sum, and avoid paying pretty much the same, 4.5%, for the next seven years on what would be half* that. Or 3.5 years overall.
So you'll be quids in to pay it all off right now as it will save you 3.5 years interest which at 4.5% is more than £3k.
You could get into the detail, eg you might make 1-2% if you put that £25000 in a savings account but savings rates are dropping all the time and the amount will diminish as you pay off the the percent max each year, so I doubt that would make a big dent.

All this = Pay it off asap.

*Half, because on average that will be the amount outstanding each year for seven years.

Thanks for that. A lot clearer now. Is there anythign else I am missing. eg other advantages to keeping a mortage. I have always aimed to get rid of all debts as soon as possible.

AnotherJoe

tomloaf wrote: »

Thanks for that. A lot clearer now. Is there anythign else I am missing. eg other advantages to keeping a mortage. I have always aimed to get rid of all debts as soon as possible.

None worth several thousand pounds. Get shot of it. I don't miss mine at all, indeed it's probably saved me money because I had an incredibly low rate on an offset and I suspect I would have done something silly involving a car had I been able to splash some cash too easily..

I think saving is a bit like giving up smoking or slimming, best way not to have a fag or eat a cream cake is not to buy one, and not having easy access to money is an easy way not to borrow for junk you don't need.

tomloaf

AnotherJoe wrote: »

None worth several thousand pounds. Get shot of it. I don't miss mine at all, indeed it's probably saved me money because I had an incredibly low rate on an offset and I suspect I would have done something silly involving a car had I been able to splash some cash too easily..

I think saving is a bit like giving up smoking or slimming, best way not to have a fag or eat a cream cake is not to buy one, and not having easy access to money is an easy way not to borrow for junk you don't need.

I' not that bad with money (spend it if it is sitting around) but I get what your saying. I'm more interested in saving my self money in the long run and what makes financial sence. Thanks again.