Pay off mortgage or overpay and avoid exit fees?

Farel01

Hello all :-)

I have a bit of a dilemma, hope you'd be able to give me some advice. I am 3 years and 8 months into my 5 year fixed rate mortgage at 4.99%. 133000 is left on it. I am due a windfall that will allow me to pay off my mortgage. Dilemma is this; there is a 6K exit fee.

Do I pay it off and pay the exit fee or do I overpay 10% in December, 10% in January and see if I can increase the monthly payments?

I can stick the money in bonds or decent paying current accounts for a year and a bit and then pay it off at the end of the deal or have the awesome feeling of paying it off straight away...

What would you do?

lee111s

Overpay as much as you can.

Unless you can make £6000 in 16 months by investing the money then you're better off waiting until the fix ends.

Farel01

lee111s wrote: »

Overpay as much as you can.

Unless you can make £6000 in 16 months by investing the money then you're better off waiting until the fix ends.

Hmm true. Though I just had a look at my statement and the interest part if about £550 every month. Though I guess that would change a bit if I overpay?

lee111s

if that's the case and you're paying 550 interest every month for the next 15 months then pay it off as you'd be paying around £8500 in interest

muhandis

First of all, it's a great dilemma to have

In your place, I would pay off the mortgage right away in spite of the ERC (which at £6k is about 11 months interest on your £130k mortgage). The fact that the interest rate is a high 4.99% and you're locked into it for 5 years pretty much eliminates the possibility of parking your funds somewhere safe where it generates close to 4.99%.

However, that's just what I myself would do.

Farel01 wrote: »

Hello all :-)

I have a bit of a dilemma, hope you'd be able to give me some advice. I am 3 years and 8 months into my 5 year fixed rate mortgage at 4.99%. 133000 is left on it. I am due a windfall that will allow me to pay off my mortgage. Dilemma is this; there is a 6K exit fee.

Do I pay it off and pay the exit fee or do I overpay 10% in December, 10% in January and see if I can increase the monthly payments?

I can stick the money in bonds or decent paying current accounts for a year and a bit and then pay it off at the end of the deal or have the awesome feeling of paying it off straight away...

What would you do?

Thrugelmir

What's the ERC % rate?

Have you confirmed that you can make lump sum over payments in December and January?

kingstreet

I would not hand over £6k for nothing.

How good is your "normal" affordability?

How about reducing the term so your contractual monthly payments can go up, as well as the overpayments you can make penalty-free?

dimbo61

If you have the money in the bank then overpay 10% in December £13,300 and again 10% approx £12,000 in January 2017.
Ask your lender to reduce the term to finish at the end of the fix !
Your payment each month would be approx £6,750
As long as you don't clear the mortgage before the fix ends they cannot charge you an ERC
Keep the money in the best account until you need it each month.

Farel01

muhandis wrote: »

First of all, it's a great dilemma to have

In your place, I would pay off the mortgage right away in spite of the ERC (which at £6k is about 11 months interest on your £130k mortgage). The fact that the interest rate is a high 4.99% and you're locked into it for 5 years pretty much eliminates the possibility of parking your funds somewhere safe where it generates close to 4.99%.

However, that's just what I myself would do.

Yeah, we had a little celebration when we found out. It was quite unexpected. :beer: I'm leaning towards paying it off.

Thrugelmir wrote: »

What's the ERC % rate?

Have you confirmed that you can make lump sum over payments in December and January?

No % rate, just a fixed amount of just over 6K.
Yes says I can overpay 10% every calendar jan-dec year.

kingstreet wrote: »

I would not hand over £6k for nothing.

How good is your "normal" affordability?

How about reducing the term so your contractual monthly payments can go up, as well as the overpayments you can make penalty-free?

Well I have debts, but also enough money to pay them off and we have a good income. So I think I could do that.

dimbo61 wrote: »

If you have the money in the bank then overpay 10% in December £13,300 and again 10% approx £12,000 in January 2017.
Ask your lender to reduce the term to finish at the end of the fix !
Your payment each month would be approx £6,750
As long as you don't clear the mortgage before the fix ends they cannot charge you an ERC
Keep the money in the best account until you need it each month.

Will the lender consider that? I thought savings were basically not taken into account when doing affordability and that payment would be our complete combined income each month.

-- Does this change whether I'll still be paying the £550 interest each month? Because if the interest is still more than 6K it would make more sense to pay it off all at once.

getmore4less

Run the total interest due over the 16months with the max overpayments.

Check the cost to reduce term to the lowest they will allow and run the interest calc again.

JimmyTheWig

Farel01 wrote: »

Will the lender consider that? I thought savings were basically not taken into account when doing affordability and that payment would be our complete combined income each month.

They will consider it, but as you say it as far as I am aware it will need to pass affordability without your savings.

-- Does this change whether I'll still be paying the £550 interest each month? Because if the interest is still more than 6K it would make more sense to pay it off all at once.

The interest charged will depend on your balance throughout the month. Paying it off over a shorter period will mean reducing the balance quicker and so paying less interest.
I make it that if they will let you reduce the term below 4 years then it is worth doing that. If they won't then it's worth paying it off.