Mortgage help - should I complete

Goldenarms_

After a recent insurance pay out we're in a position to pay off our mortgage but I don't know if it's worth it yet with the fees involved.

When I log on to our mortgage providers website it says our balance is £97800. And that is over another 26 years roughly.

We took the mortgage out in 2015 and fixed the payments for 5 years at an interest rate of 2.89%, so what I understand is there will always be higher fees to complete within that fixed rate period.

I contacted the bank last week and the figure they gave me to complete was £103,628.

So I'm wondering is it best to bite the bullet and pay that extra £6k?

Or would it make more financial sense to make overpayments until 2020 and then complete? We can pay 10% of the mortgage value each year in over payments.

chelseablue

If it was me I wouldn't want to hand over £6k to the bank (they already get enough mortgage interest out of me!)


I would overpay and clear in 2020, it'll come round quick enough we're already nearly in 2017

Canary_Yellow

How much interest would you be paying between now and the end of the fixed term, assuming you over paid as much as you are allowed?


How much interest would you earn on the cash you've got assuming the above?


Do you end up with a net cost that is more or less than the early termination fee?


My guess would be that you will probably be paying more than the £6k early termination fee in interest over that period, and you won't be earning a huge amount of interest income given current rates. If that's the case, I'd repay now.


Worth checking if the early termination fee has steps (i.e. x% until 2017 and y% after that etc) if you haven't already.

Goldenarms_

I've been in touch with the bank and they sent me some figures.

In this fixed rate period until 2020 I would be paying over £10k in interest so it looks like this is a no brainer.

ThePants999

Goldenarms_ wrote: »

I've been in touch with the bank and they sent me some figures.

In this fixed rate period until 2020 I would be paying over £10k in interest so it looks like this is a no brainer.

Not true at all.

The correct comparison is:
- if you repay now, you save £10k interest and pay £6k ERC. (It wouldn't be 10k, either, remember the bank figures would not have assumed you repay 10% per year.)
- if you repay in 2020, you pay whatever the interest works out to be, but earn whatever return you can get on £97k over that period.

If you can even earn 1% on your money, you're better off waiting!

getmore4less

Run the numbers properly. ( would help if you did the month not just the year.

also ask how much would it cost to change the term to 4/5 years.

£97800 over 26years 2.89% say £445pm

Working on 4years left.
interest £10580.

working on 4 years 10% overpayment now and 3 more times
Y. amount, 10% 1y interest
1. 97800 - 9780 2507
2. 85167 - 8516 2170
3. 73382 - 7338 1862
4. 62568 - 6256 1578
left £52548
total interest £8117 penalty is around £5.8k say worst case need to make £2500 on the savings

if you work on an average balance on saving of around £70k over 4 years

seem to be a few fixed rate savings accounts paying over 1%
Saving rate after tax 1% £2800

Goldenarms_

So you don't pay interest on overpayments? This is our first mortgage so I'm not really clued up.

We also want the least stressful option as we are going through a tough time at the moment and the idea of getting the mortgage out the way sounded appealing.

Thanks for the replies.

ViolaLass

Goldenarms_ wrote: »

So you don't pay interest on overpayments? This is our first mortgage so I'm not really clued up.

We also want the least stressful option as we are going through a tough time at the moment and the idea of getting the mortgage out the way sounded appealing.

Thanks for the replies.

Overpayment = owe the bank less = less capital on which to pay interest.

If overpaying didn't reduce the interest to be paid in future, there would be little point in overpaying at all.

Is there anything else you could do with the money to make matters less stressful for you now? A holiday? Home improvements? A cleaner? Training?

Goldenarms_

getmore4less wrote: »

Run the numbers properly. ( would help if you did the month not just the year.

also ask how much would it cost to change the term to 4/5 years.

£97800 over 26years 2.89% say £445pm

Working on 4years left.
interest £10580.

working on 4 years 10% overpayment now and 3 more times
Y. amount, 10% 1y interest
1. 97800 - 9780 2507
2. 85167 - 8516 2170
3. 73382 - 7338 1862
4. 62568 - 6256 1578
left £52548
total interest £8117 penalty is around £5.8k say worst case need to make £2500 on the savings

if you work on an average balance on saving of around £70k over 4 years

seem to be a few fixed rate savings accounts paying over 1%
Saving rate after tax 1% £2800

So that amounts to £31,890 in overpayments over 4 years. So it would be best to leave roughly that amount for me to access? And invest the rest? £70k ish?

Just had a quick search and vanquis bank are offering 1.85% on a 4 year fixed rate bond. Is that the sort of savings account you would recommend?

getmore4less

Goldenarms_ wrote: »

So that amounts to £31,890 in overpayments over 4 years. So it would be best to leave roughly that amount for me to access? And invest the rest? £70k ish?

Just had a quick search and vanquis bank are offering 1.85% on a 4 year fixed rate bond. Is that the sort of savings account you would recommend?

I have done NO research on what is avaialble bu tof the top of my head I would

1. investigate the cost of reducing term,
some lenders will do it free but it will most likely needs affordability check and just have 100% cover in saving may not be enough to get down to 5 years but 10 or 15 may be achievable.
resaulkt a higher standard payment == less interest

2. check if/when the ERC rate drops

3. overpay max now

4. investigate the best rate for 1year
and invest the 2nd years overpayment
might be some regular savers or accounts can even better the mortgage for some of it

5. investigate a 2 year rate.
use that for the 3rd payment unless above is better

...

There will be other option like take a punt on premium bonds
Spend some money on making your house nicer to live in.
...

The other thing you need to do is plan for the mortgage free day what will you do with more disposable money,