Reducing ERC by overpaying before moving home

jonnyh15

Hi everyone, this is my first post on the forum, although I have been using the main site for many months.

I am in the process of moving home, and have decided to redeem my current fixed mortgage which has 2 years fix period left, and taking out a new mortgage with a different provider at a better rate.

My mortgage is with bank of ireland and the early repayment charges are 5% of the outstanding balance. My solicitor recently obtained a cost of redemption quote, which included th ERC as expected.

My thought is this; if I were to make an overpayment of say £5000 the week before I move house, then the ERC I would be charged would be less, provided I stay within 10% overpayments.

Does anyone have any thoughts on this? Thanks

Thrugelmir

Your logic is fine. Providing it's within the allowable limits of your mortgage product.

dimbo61

Can you check my giving the Bank of Ireland a call if you are allowed to overpay 10% this year and 10% next year?
Now could you ask the Bank of Mum and Dad, or sister/brother if they could help you save a few pounds by overpaying before Xmas.
When you sell the property you repay them the money

jonnyh15

I have the money in savings to make the overpayment, which I didn't want to the up in my mortgage, however because we will be selling the property, I will be getting it straight back.
I think I will call BOI tomorrow and check how much I can overpay by, as I have already made overpayments this year. I'm also not sure whether the 10% a year is a calendar year or financial year.

chopper78

https://www.bankofirelandmortgages.co.uk/existing-customer/buy-to-let/manage-your-mortgage/overpayments

"The total amount overpaid within each year not exceeding 10% of your opening mortgage balance. In the year that your mortgage starts the 10% allowance is calculated on the original loan amount (excluding added fees). In subsequent years the 10% allowance is calculated on the outstanding mortgage balance at close of business on the previous 31st March.
If you pay more than 10% in any year then we’ll charge you an ERC on each amount you repay above your allowance."

I'm not sure what effect making a £5000 overpayment a couple of weeks before redemption would have - I don't think it would save you any of your ERC, but it might save you a couple of weeks interest.

getmore4less

The ERC should be calculated using up the rest of any ERC free allowance.

if they are calculating on the full balance they are doing it wrong.

jonnyh15

Thanks everyone for your replies. After contacting BOI, they base the ERC charge on the full amount being paid on completion, it does not take into account any over payment allowance.
Therefore I am best off making an overpayment a short time before closing my mortgage.

dimbo61

Every little helps :-)